Question 2 : LaPangR Inc. estimates that its average-risk projects have a wACC o

Question

Question 2 : LaPangR 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? (6 points (A) Project B, which is of below-average risk and has a return of 8.5% (6) 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

Option A.

Project B, which is a below-average risk has a return of 8.5%, which is greater than the risk the company expects for below-average risk, 8%.

Project C and A do not offer the return that is expected for the amount of risk taken.

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