Problem 11-2 Cost of capital (LO11-2] Speedy Delivery Systems can buy a piece of equipment that is anticipated to provide an 7 percent return and can be financed at 4 percent with debt. Later in the year, the firm turns down an opportunity to buy a new machine that would yield a 11 percent return but would cost 13 percent to finance through common equity. Assume debt and common equity each represent 50 percent of the firm's capital structure. a. Compute the weighted average cost of capital. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Weighted average cost of capital L 8.50 %
Dividend Policy
A dividend is a part of the profit paid to the shareholder in an organization. The management of the organization has the right to decide the policy for giving a dividend from the earnings to the shareholder. However, an organization is not in the obligation to declare a dividend for the investor. Dividend policy differs from organization to organization. As the management has the only authority to decide dividend rate, dividend amount, and time of dividend payout by considering all other elements that create an impact on the payment of a dividend.
Stocks And Dividends
Stock or equities are generally sold and bought in the Stock Exchange or which is popularly known as the stock market. Stocks are issued in the Stock Exchange for the sole purpose of raising funds for the Corporation or the company itself. Now since an individual has purchased a portion of the Corporation or company, he or she may claim to be a part of the earnings or profit of the company.
![**Problem 11-2 Cost of Capital [LO11-2]**
Speedy Delivery Systems can buy a piece of equipment that is anticipated to provide a 7 percent return and can be financed at 4 percent with debt. Later in the year, the firm turns down an opportunity to buy a new machine that would yield an 11 percent return but would cost 13 percent to finance through common equity. Assume debt and common equity each represent 50 percent of the firm’s capital structure.
**a.** Compute the weighted average cost of capital. *(Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)*
- **Weighted average cost of capital:** 8.50%
**b.** Which project(s) should be accepted?
- [ ] New machine.
- [x] Piece of equipment.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7b07311e-f579-4ac8-b710-7e0c1ec8bc92%2F2a506fa4-f7f1-4dd0-a278-4ff332f50ef8%2F1bta6f_processed.png&w=3840&q=75)
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