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Project Selection

Midwest Water Works estimates that its WACC is 10.60%. 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

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Elin Hessel
Elin HesselLv2
28 Sep 2019

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Project Selection

Midwest Water Works estimates that its WACC is 10.40%. 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

10-5: PROJECT SELECTION Midwest WaterWorksestimates that its WACC is 10.5%. The company isconsideringthe following capital budgeting projects:

Project Size Rateof 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 thefirm’sexisting assets and that the firm may accept all theprojects oronly some of them. Which set of projects should beaccepted?Explain.

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