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:

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

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: ​
​
 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

Quizplus · Accepted Answer

The projects with low risk (Project A, with a WACC of 8%) and average risk (Project B, with a WACC of 10%) would maximize shareholder wealth. Project D has a higher WACC than Project B and should not be considered, while Project E has a lower expected return than Project A and should also be rejected. Therefore, the correct answer is C, which includes Projects A, B, and D.

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