Ye Olde Antique Stock Certificate Company ,Inc. Olde) has recently determined that the optimal capital structure for the firm is 40% debt and 60% equity. The current interest rate for borrowing for Olde is 12 1/2% while its stockholders expect a 20% return on their equity. The company's corporate income tax rate is 40% and interest is a deductible expense for tax purposes.
A) What is Olde's cost of capital?
B) Olde is considering a project to expand to the Europe. The project will cost $200,000, have no salvage value, have an estimated life of 15 years, and have net cash flow benefits of $30,000. Should Olde accept the project? Why or Why not?

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The Answer of Ye Olde Antique Stock Certificate Company ,Inc. Olde) has recently determined that the optimal capital structure for the firm is 40% debt and 60% equity. The current interest rate for borrowing for Olde is 12 1/2% while its stockholders expect a 20% return on their equity. The company's corporate income tax rate is 40% and interest is a deductible expense for tax purposes.
A) What is Olde's cost of capital?
B) Olde is considering a project to expand to the Europe. The project will cost $200,000, have no salvage value, have an estimated life of 15 years, and have net cash flow benefits of $30,000. Should Olde accept the project? Why or Why not?