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Project Selection

A company has four new text publishing products that it must decide on publishing to expand its services. The firm's WACC has been 17%. The projects are of equal risk, Ã?s of 1.6. The risk-free rate is 7% and the market rate is expected to be 12%. The projects are expected to earn as follows:

Project W: 14%
Project X: 18%
Project Y: 17%
Project Z: 15%

What projects should be selected and why?

Solution Preview

You need to select projects where the IRR is greater than the WACC. The WACC is 17% and the IRR of only Project X is greater than that. ...

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