Question

In: Finance

A firm estimates that its average-risk projects have a WACC of 10%, its below-average risk projects...

A firm estimates that its average-risk projects have a WACC of 10%, its below-average risk projects have a WACC of 9%, and its above-average risk projects have a WACC of 12%. Which of the following projects (A, B, and C) should the company accept?

A:Project B is of below-average risk and has a return of 9.5%.

B:Project C is of above-average risk and has a return of 11.5%.

C:Project A is of average risk and has a return of 9%.

D:None of the projects should be accepted.

Solutions

Expert Solution

Option A is correct

Project B is of below-average risk and has a return of 9.5%

Project B is below average risk project and WACC of below average project is 9%,

Here,

Rate of Return of Project B is 9.5% which is greater than 9% so it should be accepted

jeff jeffy answered 2 years ago
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