1. Rambo Exterminator Company bought a â€œBug Eradicatorâ€ in April of 2008 that provided a return of 7 perc
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1. Rambo Exterminator Company bought a â€œBug Eradicatorâ€ in April of 2008 that provided a return of 7 percent. It was financed by debt costing 6 percent. In August, Mr. Rambo came up with an â€œentire bug colony destroyingâ€ device that had a return of 12 percent. The chief financial officer, Mr. Roach, told him it was impractical because it would require the issuance of common stock at a cost of 13.5 percent to finance the purchase. Is the company following a logical approach to using its cost of capital?
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