Over-the-Top Canopies (OTC) is evaluating two independent investments. Project S costs $150,000 and has an IRR equal
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Over-the-Top Canopies (OTC) is evaluating two independent investments. Project S costs $150,000 and has an IRR equal to 12 percent, and Project L costs $140,000 and has an IRR equal to 10 percent. OTC’s capital structure consists of 20 percent debt and 80 percent common equity, and its component costs of capital are rdT = 4%, rs = 10%, and re = 12.5%. If OTC expects to generate $230,000 in retained earnings this year, which project(s) should be purchased?
Capital StructureCapital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a...
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