Langston Labs has an overall (composite)WACC of 10%,which reflects the cost of capital for its average asset.Its assets vary widely in risk,and Langston evaluates low-risk projects with a WACC of 8%,average-risk projects at 10%,and high-risk projects at 12%.The company is considering the following projects: $\begin{array}{ccc}
\text { Project } & \text { Risk } & \text { Expected Return } \
\text { A } & \text { High } & 15 \% \
\text { B } & \text { Average } & 12 \% \
\text { C } & \text { High } & 11 \% \
\text { D } & \text { Low } & 9 \% \
\text { E } & \text { Low } & 6 \%
\end{array}$
?
Which set of projects would maximize shareholder wealth?
A) A and B.
B) A,B,and C.
C) A,B,and D.
D) A,B,C,and D.
E) A,B,C,D,and E.

Question

Quizplus · Accepted Answer

Projects should be accepted if their expected return exceeds the WACC for their risk level. Project A (15% > 12%), B (12% > 10%), and D (9% > 8%) meet this criterion, maximizing shareholder wealth.

Langston Labs Has an Overall (Composite)WACC of 10%,which Reflects the Cost