Project Selection Midwest Water Works estimates that its WACC is 10.42%. The com

Question

Project Selection

Midwest Water Works estimates that its WACC is 10.42%. 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 Rate of Return A $1 million 12.0% -Select-acceptdon't acceptItem 1 B 2 million 11.5 -Select-acceptdon't acceptItem 2 C 2 million 11.2 -Select-acceptdon't acceptItem 3 D 2 million 11.0 -Select-acceptdon't acceptItem 4 E 1 million 10.7 -Select-acceptdon't acceptItem 5 F 1 million 10.3 -Select-acceptdon't acceptItem 6 G 1 million 10.2 -Select-acceptdon't acceptItem 7

Explanation / Answer

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%

These projects should be accepted as the return on the project is higher than the WACC (10.5%) which means that the projects will be profitable as the returns are higher than the cost of the project(Capital).

Rest two should'nt be.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.