Project A B . с D E F G Required investment (in millions) $300 400 400 100 100 200 350 Rate of Return 16.0% 15.5 C) A. B, D, E D) B.C.E.F E) B.C.E. 12.0 11.7 10.0 9.0 8.5 Risk-adjusted WACC Excess Return • The company has a limited capital budget of $900. A) B, D. G B) A, B.F. (a) No budget limitation Ranking (b) subject to budget Except for projects F and G are mutually exclusive, all the other projects are independent. Projects A and C are high-risk projects; projects B and E are average-risk projects; while projects D, F, and G are low-risk Available Capital Ranking projects. The company estimates that its WACC is 9%. The company adjusts for risk by adding 3 percentage points to the WACC for high-risk projects and subtracting 3 percentage points from the WACC for low-risk projects.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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23. Which of the projects will the company accept?
Project
A
B
C
D
.
E
F
G
Required
investment
(in
millions)
$300
400
400
100
100
200
350
Rate of Risk-adjusted
Return WACC
C) A. B, D, E
D) B.C.E. F
E) B.C.E.
16.0%
15.5
12.0
11.7
10.0
9.0
8.5
Excess Return
(a) No
budget
limitation
Ranking
(b) subject to budget
Except for projects F and G are mutually exclusive, all the other projects are independent.
Projects A and C are high-risk projects; projects B and E are average-risk projects: while projects D, F, and G are low-risk
projects.
The company estimates that its WACC is 9%. The company adjusts for risk by adding 3 percentage points to the WACC for
high-risk projects and subtracting 3 percentage points from the WACC for low-risk projects.
• The company has a limited capital budget of $900.
A) B, D. G
B) A, B. F
Available Capital Ranking
Transcribed Image Text:23. Which of the projects will the company accept? Project A B C D . E F G Required investment (in millions) $300 400 400 100 100 200 350 Rate of Risk-adjusted Return WACC C) A. B, D, E D) B.C.E. F E) B.C.E. 16.0% 15.5 12.0 11.7 10.0 9.0 8.5 Excess Return (a) No budget limitation Ranking (b) subject to budget Except for projects F and G are mutually exclusive, all the other projects are independent. Projects A and C are high-risk projects; projects B and E are average-risk projects: while projects D, F, and G are low-risk projects. The company estimates that its WACC is 9%. The company adjusts for risk by adding 3 percentage points to the WACC for high-risk projects and subtracting 3 percentage points from the WACC for low-risk projects. • The company has a limited capital budget of $900. A) B, D. G B) A, B. F Available Capital Ranking
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