A company with an average WACC of 10% adjusts for risk by adding 2% for high...

A company with an average WACC of 10% adjusts for risk by adding 2% for high risk projects and subjecting 2% for low risk projects. Which of the following projects should the company accept? Only one option can be an answer.

A)An average risk project with an IRR of 10%

B)Low risk project with an IRR of 7%

C)High risk project with an IRR of 13%

D)High risk project with IRR of 11%

Expert Solution

Adjusted WACC for High risk Project 10%+2% = 12%

For Low Risk Project 10%-2% = 8%

For Average Project 10%

Answer C)High risk project with an IRR of 13% because it will give Positive NPV

jeff jeffy answered 2 years ago

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