Question

Tom, the owner of Burger Palace, determined that the weighted average cost of capital is 7%. He expects a return of 5% per year on all of his investments. A proposal presented by the owner of the Dairy Choice next door seems quite risky to Tom, but it is an intriguing partnership opportunity. Tom has determined that the proposal’s “risk factor” will require an additional 3% per year return for him to accept it. Apply the recommended approach to determine the MARR that Tom should use.

The MARR that Tom should use is _______%.

Answer 1

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