Problem:
A company has a target capital structure that consists of 40 percent debt and 60 percent equity. The company's capital budget for next year is $10 million. The company expects net income of $8 million. The company's cost of capital is 12 percent.
Required:
Question: Should the company go ahead with a project of average risk that generates a 10 percent rate of return? Why or why not?
Note: Can someone please give me a step by step solution?