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Business, 23.05.2020 04:58 cookies1164

Colorado Computer is considering expansion into the computer disk drive manufacturing business to be paid for with the $10,000,000 cash that can be raised from the sale of 30-year bonds. The expansion project being evaluated has been determined to have an internal rate of return (IRR) of 12.5%. Colorado Computer has a 16% cost of equity capital and investors are currently receiving a 12% yield to maturity on Colorado's 30-year bonds. What is the company's cost of capitals? (Assume that Colorado's target capital structure is 60% debt and 40% equity, it pays 30% corporate income taxes, and flotation costs are to be ignored.) Based on this information, Should Colorado enter the disk drive manufacturing business at this time?Why?

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