solution
Which cost of capital should be used to evaluate the feasibility of the oven purchase?
Homework Answers
As the new oven will be purchased with available cash and retained earnings of Sunrise, the cost of equity should be used to evaluate oven purchase feasibility. The cost of retained earnings will be the cost of equity, and no new debt will be used for oven purchase.
If any new debt is going to use along with retained earnings, then WACC will be appropriate to evaluate the feasibility of oven purchase.
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