Midwest Water Works estimates that its WACC is 10.53%. The company is considerin
ID: 2764351 • Letter: M
Question
Midwest Water Works estimates that its WACC is 10.53%. The company is considering the following capital budgeting projects.
Assume that each of these projects is just as risky as the firm's existing assets and that the firm may accept all the projects or only some of them. Which set of projects should be accepted?
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 _________________Explanation / Answer
1. if the return from a project is greater than its cost, we should undertake the project
In this question project A, B, C, D, E should be accepted since the return is greater than WACC of 10.53%