Suppose Tapley Inc. uses a WACC of 8% for below-average riskprojects, 10% for average-risk projects,...

Suppose Tapley Inc. uses a WACC of 8% for below-average risk projects, 10% for average-risk projects, and 12% for above-average risk projects. Which of the following independent projects should Tapley accept, assuming that the company uses the NPV method when choosing projects?

A). Project A, which has average risk and an IRR = 9%.

B). Project B, which has below-average risk and an IRR = 8.5%.

C). Project C, which has above-average risk and an IRR = 11%.

D). Without information about the projects' NPVs we cannot determine which one or ones should be accepted.

E). All of these projects should be accepted as they will produce a positive NPV.

Solutions

Expert Solution

Answer = project B should be accepted

Explanation:

Any project whose WACC

So, when WACC is more then the IRR of the project, it cannot be accepted when npv method is used

Hence,

Only Project b has IRR more than WACC, hence it could be considered and accepted. Project A and C will be rejected

jeff jeffy answered 1 year ago

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