Click here to read the eBook: An Overview of the Weighted Average Cost of Capita

Question

Click here to read the eBook: An Overview of the Weighted Average Cost of Capital (WACC) PROJECT SELECTION Midwest water works estimates that its WACC is 10.44%. The company is considering the following capital budgeting projects. Assume that each of these projects is just as risky as the firm's existing assets and that the firm may accept all the projects or only some of them. Which set of projects should be accepted? Project Size $1 million 2 million 2 million 2 million 1 million 1 million 1 million Rate of Return 12.0% 11.5 11.2 11.0 10.7 10.3 10.2 -Select- -Select- -Select- -Select- -Select- -Select- -Select- 8

Explanation / Answer

Projects will give Positive NPV if rate of return more than weighted average cost of capital. Therfore accept the projects having return more than 10.44% and reject the projects  having return less than 10.44%.

Accept A,B,C,D,E

Reject F,G

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