1. Drag the Low risk and High risk project points so their expected rates of return are 9% and 11%, respectively. If you could choose only one project to go forward, which would you choose? a. Project Low because its expected rate of return is higher than its WACC. b. Project Average because its expected rate of return exactly equals its WACC. c. Project High because its expected rate of return is higher than for any of the other projects. d. Any are good choices because the WACC balances the risk. -Select- 2. Now drag the Low risk and High risk project points so their expected rates of return are 7% and 11%, respectively. If you could choose only one project to go forward, which would you choose? a. Project Low because its expected rate of return is close to its WACC. b. Project Average because its expected rate of return equals its WACC and the others are both below their respective WACC's. c. Project High because its expected rate of return is higher than for any of the other projects. d. Any are good choices because the WACC balances the risk. -Select- 3. Now drag the Low risk and High risk project points so the expected rates of return are 10% for all the projects. If you could choose only one project to go forward, which would you choose? a. Project Low because its expected rate of return far exceeds its WACC. b. Project Average because its expected rate of return exactly matches its WACC. c. Project High because its rate of return is below its WACC. d. Any of the projects would be a good choice because they all are expected to return 10%. -Select- The line represents WACC, the weighted average cost of capital as a function of risk. Three firms or projects with the risk levels RiskL (low), RiskA (average), and RiskH (high) are highlighted. The vertical axis shows each project's expected rate of return. The area above the line is the "Acceptance Region." Projects in this region are expected to return more than the weighted average cost of capital as a function of risk. The lower area is the "Rejection Region." Projects in this region are expected to return less than the weighted average cost of capital as a function of risk. The expected rate of return for the Low risk and High risk projects can be changed by dragging their dots up and down. Drag them to see how they move from one region to the other. Rate of Return Acceptance Region 12.0% 10.0% 8.0% Rejection Region 0 Riskl Riska RiskH Risk