Taylor 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?
A) project c, which is of above-average risk and has a return of 11%.
B) project a, which is of average risk and has a return of 9%.
C) none of the projects should be accepted.
D) all of the projects should be accepted.
E) project b, which is of below-average risk and has a return of 8.5%.

Question

Quizplus · Accepted Answer

Project B has a return greater than its risk-adjusted cost of capital, so it should be accepted.