An all-equity firm is considering the projects shown as follows. The T-bill rate is 4 percent and the market risk premium is 9 percent.If the firm uses its current WACC of 14 percent to evaluate these projects,which project(s)will be incorrectly rejected?
A) Project A
B) Project B
C) Project C
D) Project D

Question

An all-equity firm is considering the projects shown as follows.  The T-bill rate is 4 percent and the market risk premium is 9 percent.If the firm uses its current WACC of 14 percent to evaluate these projects,which project(s)will be incorrectly rejected?
A) Project A 
B) Project B 
C) Project C 
D) Project D

Quizplus · Accepted Answer

Using WACC accept B
Project A: 4 + 9 (0.25) = 6.25 percent,
accept Project B: 4 + 9 (1.3) = 15.7 percent,
accept Project C: 4 + 9 (1.6) = 18.4 percent,
reject Project D: 4 + 9 (2.1) = 22.9 percent, reject

An All-Equity Firm Is Considering the Projects Shown as Follows