Over-the-Top Canopies (OTC) is evaluating two independent investments. Project S costs $155,000 and has an IRR equal to 9 percent, and Project L costs $145,000 and has an IRR equal to 8 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 = 13.5%. If OTC expects to generate $230,000 in retained earnings this year, which project(s) should be purchased?Round your answers to one decimal place.Project S -> WACC ______ % -> Acceptable? Yes / No Project L -> WACC ______ % -> Acceptable? Yes / No Thus, (ONLY PROJECT S, ONLY PROJECT L, BOTH PROJECTS, NEITHER PROJECT) should be purchased. Over-the-Top Canopies (OTC) is evaluating two independent investments. Project S costs $155,000 and has an IRR equal to 9 percent, and Project L costs $145,000 and has anIRR equal to 8 percent. OTC's capital structure consists of 20 percent debt and 80 percent common equity, and its component costs of capital are rat = 4%, rs = 10%, and re =13.5%. If OTC expects to generate $230,000 in retained earnings this year, which project(s) should be purchased? Round your answers to one decimal place.ProjectWACCAcceptable?-Select- V-Select- V%%Thus -Select-only Project Sonly Project Lboth projectsneither projecthould be purchased.

Break point = maximum amount / capital structure = 230000/80% = 287500 Capital budget < 287500…

Answered: which project(s) should be purchased?

Business

Finance

which project(s) should be purchased?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 10P: Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year...

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