Posted by **Andy** on Monday, March 1, 2010 at 1:21pm.

1. Langston Labs has an overall (composite) WACC of 10%, which reflects the cost of capital for its average asset. Its assets vary widely in risk, and Langston evaluates low-risk projects with a WACC of 8%, average projects at 10%, and high-risk projects at 12%. The company is considering the following projects:

Risk Expected Return

High 15%

Average 12

High 11

Low 9

Low 6

Which set of projects would maximize shareholder wealth? Why?

- Corporate Finance -
**Chimaren**, Tuesday, April 27, 2010 at 11:57am
The answer is all about the risk, not the percentages.

In other words, there are only three projects that exceed the minimum WACC required based on the risk criteria:

15% because it exceeds the high risk WACC of 12%

12% because it meets and exceeds the average WACC of 10%

and the 9% because it exceeds the low WACC of 8%

- Corporate Finance -
**Anonymous**, Sunday, May 9, 2010 at 3:05pm
bgfxbv

- Corporate Finance -
**Grace**, Saturday, February 16, 2013 at 10:34am
PROJECT RISK RETURN

A High 15%

B Average 12

C High 11

D Low 9

E Low 6

so the projects A, B, and D will maximize the shareholder wealth

## Answer This Question

## Related Questions

- Fin215 - You are to assume that a firmâ€™s cost of capital is 10%. Using this ...
- investing - Suppose a firm estimates its cost of capital for the coming year to ...
- finance management - Suppose a firm estimates its cost of capital for the coming...
- Financial Management - Reading Foods is interested in calculating its weighted ...
- Finance - Houston Inc. is considering a project which involves building a new ...
- Accounting PLEASE HELP!!!!!!!!! - Reading Foods is interested in calculating its...
- Math (Accounting) - Reading Foods is interested in calculating its weighted ...
- Financial Management - What are reasonable cost of capitol for evaluating ...
- investing - 1. What does calculating the weighted average cost of capital (WACC...
- Finance - Suppose the market risk premium is 6.5% and the risk-free interest ...

More Related Questions