Starsky is a research company that plans on purchasing new equipment this year for an existing project that has shown promising results. The project is expected to return $175,000 per year for the next 10 years. The equipment needed will cost $2,000,000. In order to purchase this equipment, Starsky must acquire the necessary funds from several sources. The following list shows the proportion of funds expected from each source, and the rate of interest (or similar cost) that will be required for each source:
Bond issuance: 25% of total funds, requires 7% interest per year
Bank loan: 60% of total funds, requires 10% interest per year
Preferred Stock issuance: 15% of total funds, requires 5% dividend per year
Does the proposed project's rate of return exceed the company's weighted average cost of capital?

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The Answer of Starsky is a research company that plans on purchasing new equipment this year for an existing project that has shown promising results. The project is expected to return $175,000 per year for the next 10 years. The equipment needed will cost $2,000,000. In order to purchase this equipment, Starsky must acquire the necessary funds from several sources. The following list shows the proportion of funds expected from each source, and the rate of interest (or similar cost) that will be required for each source:
Bond issuance: 25% of total funds, requires 7% interest per year
Bank loan: 60% of total funds, requires 10% interest per year
Preferred Stock issuance: 15% of total funds, requires 5% dividend per year
Does the proposed project's rate of return exceed the company's weighted average cost of capital?

Starsky Is a Research Company That Plans on Purchasing New