Speedy Delivery Systems can buy a piece of equipment that is anticipated to provide an 6 percent return and can be financed at 3 percent with debt. Later in the year, the firm turns down an opportunity to buy a new machine that would yield a 13 percent return but would cost 15 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. (Round your intermediate and final answers to 1 decimal place. Omit the "%" sign in your response.)

Weighted average cost of capital %

(b) Which project(s) should be accepted?


New machine should be financed.
Piece of equipment should be financed.