At the beginning of the year, you were appointed in the office of the chief financial officer

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Question:

At the beginning of the year, you were appointed in the office of the chief financial officer (CFO) at the corporate offices of XYZ Trading Corporation and were fortunate to be enrolled for post-graduate studies to obtain a management degree. A few days ago, you were called in by the CFO and received your first real assignment - you have to consider the different projects submitted by managers of different departments/locations/offices and select the company's capital projects for the upcoming financial year. Fortunately, you have already attended the first class in Engineering Economics and can apply your newly obtained knowledge to make informed recommendations.

You have done some work with the help of colleagues and found out that the company's objective is to grow rapidly through high leverage and therefore uses only 10% equity financing, with 90% of the financing being through debt. The cost of equity capital is 9% and the cost of debt capital is 16%.With the help of your colleagues, you could calculate the projected rate of return (ROR) for the different projects submitted and gave them some code-names.