Glitter Inc. uses one-quarter common stock and three-quarters debt to finance their operations. The after-tax cost...

Glitter Inc. uses one-quarter common stock and three-quarters debt to finance their operations. The after-tax cost of debt is 5 percent and the cost of equity is 13 percent.

The management of Glitter Inc. is considering an expansion project that costs $1.2 million. The project will produce a cash inflow of $50,000 in the first year and 150,000 in each of the following 10 years (i.e., $150,000 in years 2 through 11). What is the WACC and should Glitter Inc. invest in this project?

A) 10 percent, do not invest in project

B) 8.5 percent, yes invest in project

C) 8.5 percent, do not invest in project

D) 7 percent, yes invest in project

E) 7 percent, no do not invest in project

Expert Solution

jeff jeffy answered 2 years ago

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