Question

Takelmer Industries has a different WACC for each of three types of projects. Lowminusrisk projects have a WACC of​ 8.00%, averageminusrisk projects a WACC of​ 10.00%, and highminusrisk projects a WACC of​ 12%. Which of the following projects do you recommend the firm​ accept?Project Level of Risk IRRA Low ​9.50%B Average ​8.50%C Average ​7.50%D Low ​9.50%E High ​14.50%F High ​17.50%G Average ​11.50%

Answer 1

A,D,E,F &G

Step-by-step explanation:

IRR is the discount rate at which the Net Present value of a project becomes zero and over this rate the Net present value become negative. All the Projects with IRR Less than the relevant WACC will not be acceptable.

WACC

High = 12%

Average = 10%

Low = 8%

Compare all of the above WACC with each of the relevant WACC to find whether a project is acceptable or not.

Project Level of Risk IRR Relevant WACC Acceptable

A Low ​ 9.50% 8% Yes

B Average ​8.50% 10% No

C Average ​7.50% 10% No

D Low ​9.50% 8% Yes

E High ​14.50% 12% Yes

F High ​17.50% 12% Yes

G Average ​11.50% 10% Yes