Taylor Inc. estimates that its average-risk projects have a WACC of 10%, its below-average risk projects have a WACC of 8%, and its above-average risk projects have a WACC of 12%. Which of the following projects (A, B, and C) should the company accept?

a. Project C, which is of above-average risk and has a return of 11%.

b. Project A, which is of average risk and has a return of 9%.

c. None of the projects should be accepted.

d. All of the projects should be accepted.

e. Project B, which is of below-average risk and has a return of 8.5%.

Question

Business

Danielle

12 January, 08:57

Taylor Inc. estimates that its average-risk projects have a WACC of 10%, its below-average risk projects have a WACC of 8%, and its above-average risk projects have a WACC of 12%. Which of the following projects (A, B, and C) should the company accept?

a. Project C, which is of above-average risk and has a return of 11%.

b. Project A, which is of average risk and has a return of 9%.

c. None of the projects should be accepted.

d. All of the projects should be accepted.

e. Project B, which is of below-average risk and has a return of 8.5%.

+2

Answers (1)

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Brisa · Answer 1

e. Project B, which is of below-average risk and has a return of 8.5%.

Explanation:

E is the only one that should be accepted. A and B both have returns that are too low considering their risk and should be rejected (which means C and d is out as an answer as well).

Is important to consider the condition where the return should be higher than the WACC.