2. LaPango Inc. estimates that its average-risk projects have a WACC of 10%, its

Question

2. LaPango 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 B, which is of below-average risk and has a return of 8.5%. b. Project C, which is of above-average risk and has a return of 11%. c. Project A, which is of average risk and has a return of 9%. d. None of the projects should be accepted.
e. All of the projects should be accepted.

Explanation / Answer

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

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