Question

Your company’s overall WACC is 10%, which reflects the cost of capital for its average asset....

Your company’s overall WACC is 10%, which reflects the cost of capital for its average asset. Its assets vary widely in risk, and your company evaluates low-risk projects with a WACC of 8%, average-risk projects at 12.5%, and a high-risk projects at 14%. If your company is considering the following projects, which set of projects would maximize shareholder wealth?

Project Risk Expected Return
A High 15%
B Average 13%
C Average 11%
D Low 9%
E Low 7%

a. A,B,D
b. covariance and variance
c. A & B
d. B,C,D
e. C,D,E
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
11. Langston Labs has an overall (composite) WACC of 10%, which reflects the cost of capital...
11. 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 projects at 10%, and high-risk projects at 12%. The company is considering the following projects: Project               Risk               Expected Return A                      High                          15% B                     Average                     12 C                    High                          11 D                      Low                          9 E                      Low                           6 Which set of projects...
2. Suppose a firm estimates its WACC to be 10%. Should the WACC be used to...
2. Suppose a firm estimates its WACC to be 10%. Should the WACC be used to evaluate all of its potential projects, even if they vary in risk? If not, what might be “reasonable” costs of capital for average-, high-, and low-risk projects?
2) LaPango Inc. estimates that its average-risk projects have a WACC of 10%, its below-average risk...
2) LaPango 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 B, which of the below-average risk and had a return of 8.5% b) Project A, which is of average risk and has a return of 9% c) Project C, which is of above-average...
If a firm uses its weighted average cost of capital (WACC) to evaluate all capital budgeting...
If a firm uses its weighted average cost of capital (WACC) to evaluate all capital budgeting projects, which of the following could occur? a. Projects with little or no risk might be rejected when they actually should be accepted. b. Projects with significant risks might be accepted when the actually should be rejected. c. Projects with average risk will always be rejected when they actually should be rejected. d. All of the above could occur. e. None of the above...
Which of the projects will the company accept? The managers of Kenforest Grocers are trying to...
Which of the projects will the company accept? The managers of Kenforest Grocers are trying to determine the company's optimal capital budget for the upcoming year. Kenforest is considering the following projects: (a) No budget limitation (b) subject to budget Project Required investment (in millions) Rate of Return Risk-adjusted WACC Excess Return Ranking Available Capital Ranking A $200 16.0% B 500 13.5 C 400 12.5 D 1000 11.5 E 600 10.7 F 200 10.0 G 400 9.5 Scenario 1: Which...
The managers of Kenforest Grocers are trying to determine the company's optimal capital budget for the...
The managers of Kenforest Grocers are trying to determine the company's optimal capital budget for the upcoming year. Kenforest is considering the following projects: (a) No budget limitation (b) limit to $230 million Project Required investment (in millions) Risk-adjusted WACC NPV (in millions) Profitability Index Ranking Available Capital Ranking A $200 $50 B 70 45 C 150 40 D 30 30 E 120 20 F 100 5 G 50 -1 H 10 -5 Which of the projects will the company...
Puckett Inc. risk-adjusts its WACC to account for project risk. It uses a risk-adjusted project cost...
Puckett Inc. risk-adjusts its WACC to account for project risk. It uses a risk-adjusted project cost of capital 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 Puckett accept, assuming that the company uses the NPV method when choosing projects? a. Project C, which has above-average risk and an IRR = 11%. b. Without information about the projects' NPVs we cannot determine which project(s) should be...
Bam Corporation is considering the following independent projects for the coming year. Their target capital structure...
Bam Corporation is considering the following independent projects for the coming year. Their target capital structure is 60 percent debt and 40 percent equity. The after-tax cost of debt is 6 percent and the cost of equity is 15 percent.                                                                                                             Expected                                                                      Required                                Rate of                          Risk Project              Investment                               Return                         Level A                   $13 million                                17%                              High B                     16 million                                9                                 Low C                     25 million                                 14                               Average D                  ...
Hampton Manufacturing estimates that its WACC is 12.1%. The company is considering the following seven investment...
Hampton Manufacturing estimates that its WACC is 12.1%. The company is considering the following seven investment projects: Project Size IRR A $ 750,000 13.5 % B 1,050,000 13.0 C 1,050,000 12.7 D 1,350,000 12.5 E 650,000 12.4 F 650,000 11.8 G 750,000 11.7 Assume that each of these projects is independent and that each is just as risky as the firm's existing assets. Which set of projects should be accepted? Project A -Select-acceptdon't acceptItem 1 Project B -Select-acceptdon't acceptItem 2...
Vang Enterprises, which is debt-free and finances only with equity from retained earnings, is considering 7...
Vang Enterprises, which is debt-free and finances only with equity from retained earnings, is considering 7 equal-sized capital budgeting projects. Its CFO hired you to assist in deciding whether none, some, or all of the projects should be accepted. You have the following information: rRF = 4.50%; RPM = 5.50%; and b = 0.98. The company adds or subtracts a specified percentage to the corporate WACC when it evaluates projects that have above- or below-average risk. Data on the 7...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT