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XYZ corporation is considering a capital project for the coming year

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XYZ corporation is considering a capital project for the coming year.

The project has an internal rate of return of 14 percent. If the firm has the following target capital structure and costs, what should their decision be and why?

Source of Capital

Proportion

After-Tax Cost

Long-term debt

0.40

10%

Preferred stock

0.10

15%

Common stock equity

0.50

20%