Suppose Tapley Inc. uses a WACC of 8% for below-average risk projects, 10% for a

Question

Suppose Tapley Inc. uses a WACC of 8% for below-average risk projects, 10% for average-risk projects, and 12% for above-average risk projects. Which of the following independent projects should Tapley accept, assuming that the company uses the NPV method when choosing projects?

a. Project C, which has above-average risk and an IRR = 11%.
b. Project A, which has average risk and an IRR = 9%.
c. Without information about the projects' NPVs we cannot determine which one or ones should be accepted.
d. Project B, which has below-average risk and an IRR = 8.5%.
e. All of these projects should be accepted as they will produce a positive NPV.

Explanation / Answer

Project B, which has below-average risk and an IRR = 8.5%.

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