Question

Apply WACC in IRR.

  Leeward Sailboats is reviewing the following new boat​ line:

Category	T0		T1	T2	T3
Investment	−​$10,133,308
Net working capital change	−​$592,000				​$592,000
Operating cash flow			​$3,691,000	​$4,307,000	​$4,929,000
Salvage					​$349,000

At what adjusted WACCs will the company accept this​ project?  

Hint​: Find the IRR of the​ project, and use it as the maximum adjusted WACC for accepting the project.

a) What is the IRR of the​ project?

b)

At what adjusted WACCs will the company accept this​ project?  ​(Select the best​ response.)

A. The company will accept this project if the adjusted WACC is greater than the IRR calculated above.

B. The company will accept this project if the adjusted WACC is no more than the IRR calculated above.

Answer 1