PDQ Inc. has a weighted cost of capital of 14.6 percent and has an opportunity to invest in the following average risk projects:
In which projects should PDQ invest? Assume no capital rationing.

Question

PDQ Inc. has a weighted cost of capital of 14.6 percent and has an opportunity to invest in the following average risk projects: 
In which projects should PDQ invest? Assume no capital rationing.

Quizplus · Accepted Answer

Solution: IRR₁ = $10,000/$1,992.43 = 5.019 so IRR = 15% IRR₂ = $21,000/$4,526.84 = 4.639 so IRR = 14% IRR₃ = $18,500/$4,580.34 = 4.039 so IRR = 16% Invest in projects 1 and 3 because their IRR is greater than 14.6%

PDQ Inc Has a Weighted Cost of Capital of 14