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Capital Budgeting: Cost of Capital

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An investment with total costs of $10,000 will generate total revenue of $11,000 for the year. Management thinks that since the investment is profitable, it should be made. Do you agree? What additional information would you want? If funds cost 12 percent, what would be your advice to management? Would your answer be different if the cost of capital is 8 percent?

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Solution Summary

This solution examines financial information and conducts calculations in order to determine if an investment should be made or not.

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I agree partially, as one has to consider the time value of money while evaluating the profitability of the enterprise. The additional information ...

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