Explore BrainMass
Share

WACC and Project NPV

This content was STOLEN from BrainMass.com - View the original, and get the solution, here!

Midwest Water Works estimates that its WACC is 10.5 percent. The company is considering the following capital budgeting projects:

Project Size Rate of Return

A 1 million 12.0%
B 2 million 11.5%
C 2 million 11.2%
D 2 million 11.0%
E 1 million 10.7%
F 1 million 10.3%
G 1 million 10.2%

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

© BrainMass Inc. brainmass.com September 19, 2018, 6:33 pm ad1c9bdddf - https://brainmass.com/business/weighted-average-cost-of-capital/wacc-and-project-npv-195238

Solution Preview

In terms of rate of return, the rule is to accept projects which have a rate of return greater than the WACC. This is because rate of return is the IRR for the ...

Solution Summary

The solution explains how to decide which projects to be accepted in 133 words.

$2.19