Conceptual Overview: Explore how the trade-off between risk and the cost of capital can be used to choose a project. 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% 7.9% Rejection Region 0 RiskL RiskA RiskH Risk