1. If a project you are evaluating is more risky than average for your company,

Question

   1. If a project you are evaluating is more risky than average for your company, should you use WACC as your discount rate, adjust WACC up, or adjust WACC down?

2.   Which of the following projects produce the largest NPV when a high discount rate is used?

a.

Those projects   that have large cash inflows in earlier years

b.

Those projects   that have large cash inflows in later years

c.

Those projects   that have large cash inflows are evenly distributed throughout the life of   the investment

d.

The   acceptability of an investment is not affected by discount rates

a.

Those projects   that have large cash inflows in earlier years

b.

Those projects   that have large cash inflows in later years

c.

Those projects   that have large cash inflows are evenly distributed throughout the life of   the investment

d.

The   acceptability of an investment is not affected by discount rates

Explanation / Answer

Hi,

Please find the answer as follows:

Part 1:

Adjust WACC Up.

Part 2:

Option A (Those projects that have large cash inflows in earlier years)

Thanks.

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