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Project Selection for Midwest Water Works

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Project selection

Midwest Water Works estimates that its Weighted Average Cost of Capital (WACC) is 10.5 percent. The company is considering the following capital budgeting projects:

Project Size Rate of return
A $1million 12.0%
B $2million 11.5%
C $2million 11.2%
D $2million 11.0%
E $1million 10.7%
F $1million 10.3%
G $1million 10.2%

Assume that each of these projects is just as risky as the firm's existing assets, and the firm may accept all the projects or only some of them. Which set of projects should be accepted? Explain.

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Solution Summary

This solution determines which set of projects should be accepted for Midwest Water Works.

Solution Preview

The projects A, B, C, D and E can be selected and Projects F and G should not be selected because ...

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