Question

Drag the Low risk and High risk project points so their expected rates of return are 9% and 11%, respectively. If you could choose only one project to go forward, which would you choosea. Project Low because its expected rate of return is higher than its WACC b. Project Average because its expected rate of return exactly equals its WACC c. Project igh because its expected rate of return is higher than for any of the other projects d. Any are good choices because the WACC balances the risk

Answer 1

Answer:

a. Project Low because its expected rate of return is higher than its WACC

Explanation:

Weighted Average Cost of Capital WACC determines firms cost of capital. It includes all sources of finance which are included in firm capital structure. The expected rate of return is the rate at which a project is able to generate return or benefits. For any project to be beneficial, its expected return should be higher than its WACC. We will select project Low because its expected rate of return is higher than its WACC.