Suppose Tapley Inc. uses a WACC of 8% for below-average risk projects, 10% for average-risk projects, and 12% for above-average risk projects. Which of the following independent projects should Tapley accept, assuming that the company uses the NPV method when choosing projects? A) Project A, which has average risk and an IRR = 9%. B) Project B, which has below-average risk and an IRR = 8.5%. C) Project C, which has above-average risk and an IRR = 11%. D) Without information about the projects' NPVs we cannot determine which project(s) should be accepted. E) All of these projects should be accepted.

Question

Quizplus · Accepted Answer

Project B has a below-average risk with an IRR of 8.5%, which is higher than the WACC for below-average risk projects (8%), indicating a positive NPV.