A company has a beta of 1.5. The market risk premium is 8%. The risk free rate is 6%. The tax rate is 40%. This company can borrow at a 10% interest rate. The D/E ratio is 1. This company is considering two mutually exclusive projects with the following net cash flows.

Year

0

1

2

3

4

5

6

7

Project A

-300

-387

-193

-100

600

600

850

-180

Project B

-405

134

134

134

134

134

134

0

What is the WACC of this company?

Calculate the NPV, IRR, MIRR? (Hint: Consider both projects end in Year 7.)

Based on the answers to parts a and b, which project should be accepted?

Assume that the WACC is changed to 18%, which project should be accepted?