The Hurrah Party Supply Company has compiled the following data relative to curr
ID: 2631273 • Letter: T
Question
The Hurrah Party Supply Company has compiled the following data relative to current costs and for various ranges of financing for its basic sources of external capital: long-term debt, preferred stock, and common stock equity.
a) Calculate the weighted average cost of capital for the firm prior to issuing new common stock.
b) Calculate the weighted average cost of capital for the firm once the retained earnings have been used(use a total new financing requirement of $500,000.)
c) Given the following information on available investment opportunities, determine which projects should be selected and explain your choice.
Investment Opportunity
Initial Investment
Internal Rate of Return
A
$100,000
$100,000
$100,000
$100,000
$200,000
$300,000
24% 23% 21% 19% 18% 18%
Investment Opportunity
Initial Investment
Internal Rate of Return
A
$100,000
$100,000
$100,000
$100,000
$200,000
$300,000
24% 23% 21% 19% 18% 18%
Explanation / Answer
A) WACC is 22 %
B) WACC is 17.35% since we have to respect the finance instrecures of categories
C) ALL prjects are acceptable since the IRR over than the WACC , which is 17.35%
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