A company\'s weighted average cost of capital is 9.5% per year. It adjusts the c

Question

A company's weighted average cost of capital is 9.5% per year. It adjusts the cost of capital for high risk projects by adding 2% to the cost of capital and it adjusts the cost of capital for low risk projects by subtracting 2% from the cost of capital. Which projects, if any, should the company pursue if it has no investment constraints? Answer "YES" or "NO" in each blank. "YES" means pursue the project. "NO" means do not invest. (10 points) Project Return Risk A 13.70% High B 11.3 Low C 12.8 Average D 10.4 Average E 13.1 Low F 12.7 High G 11.9 High H 10.7 Low

Explanation / Answer

High risk required return = 9.5% + 2% = 11.50%

Low risk project = 9.5% - 2% = 7.50%

Project A = Yes

Project B = Yes

Project C = Yes

Project D = Yes

Project E = Yes

Project F = Yes

Project G = Yes

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