Project Selection Midwest Water Works estimates that its WACC is 10.45%. The com

Question

Project Selection

Midwest Water Works estimates that its WACC is 10.45%. 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?

Accept or Dont Accept A through G

Project Size Rate of Return A $1 million 12.0% B 2 million 11.5 C 2 million 11.2 D 2 million 11.0 E 1 million 10.7 F 1 million 10.3 G 1 million 10.2

Explanation / Answer

we know that

the Midwest Water Works should accept those projects which have Rate of Return greater than WACC

while we are given Midwest Water Works estimates that its WACC is 10.45%

We can see that project

A, B , C , D and E have greater reurn than 10.45%

the project whose return is greater than WACC will have a positive NPV and would increase the value of the firm

Hence , Midwest Water Works will accept projects A, B, C, D and E........Answer

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