Conceptual Overview: Explore the trade-off between risk and the cost of capital. The line represents WACC, the woighted average cost of capital as a function of risk. Throetprojects with the risk levels RakL (low), RiskA (averago), and RiskH (high) are highilighted. The verticil axis shows the necessary rate of return a firm would need to go forward with a project given the level of WacC. Drag the line on the left side to change the y-intercept of the Wacc une. Changes in the y-intercept often are caused by intlation or deflabion. Observe how changing the intercept influences the acceptance region and the rates of retum needed by the three firms. Drag the line on the right side to change the slope of the WaCC line. Changes in slope reflect risk, A steeper slope means there is greater risk, while a flatter slope means there is less risk. Observe how changes in risk (the slope of the line) influence the acceptance region and the rate of retum required by the three projects. Ch 10: Exploring Finance Visualizations - Risk and the Cost of Capital 1. A the y intercect changes, the relative differenges in the repiend rate of caturn for the three rak irveli. a. Remain the samh b. Increase c. Decrease d. Cannot determine 6. Remain the same b. Increase C. Decrease d. Cannot determine 10: Exploring Finance Visualizations - Project choice, Aisk and the Cost of Capital Conceptual Overview: Explore how the trade-off between risk and the cost of capital can be used to choose a project. The Ine reprosents WACC, the weighted average cost of capital as a function of risk. Theee firms or projects with the risk levels Riskt. (low). RiskA (average), and Riskt (high) ace highlighted. The vertical anis shows each project's expected rate of return. The area above the line is the "Acceptance Region." Projects in this region are expected to retum more than the weighted average cost of capital as a function of risk. The lower area is the "Rejoction Pegion." Projects in this region are expected to retum less than the weighted average cost of capital as a function of risk. The expected rate of cotum for the Low risk and High risk projects can be changed by dragging their dots up and down, Dmg them to see how they move from one tegion to the other. Ch 10: Exploring Finance Visualizations - Project Choice, Aick, and the Cost of Capiral 1. Drog the Low risk and High rek project points so their expected rates of return are 9% and 11%, respectively. if you could choose oely one project to go forward, which would you choose? a. Project Low becsuse its expected rate of return is higher than its wacC. b. Froject Averege because its expected rate of retum eractly equals its wacc. c. Project High because its expected rate of return is higher than for any of the other project. d. Any are good choices because the wacc bolances the rikk. 2. Now drang the Low risk and high risk project points so their expected rates of return ore 7w and 11%, respectively. If you could choose enly one profect 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 equais its wacc and the ochers are both belon their respective WacCs. c. Project regh because its expected rate of return is higher than for any of the other projects: d. Any are good choices becouse the Wact balances the risk. 3. Now drag the Low. risk and High risk project points so the expected rates of return are 104b for all the projecti. If you could choose only one project to go forward, which woild you choose? a. Project Low becouse its expected rate of retum for exceeds its wace. b. Project Average because its expected rate of retura exactly matches its WacC. c. Project High becasute its fate of return is belew its wAcc. d. Ary of the projects would be a good choice becaise they all ere expected to return 10% Conceptual Overview: Explore the trade-off between risk and the cost of capital. The line represents WACC, the woighted average cost of capital as a function of risk. Throetprojects with the risk levels RakL (low), RiskA (averago), and RiskH (high) are highilighted. The verticil axis shows the necessary rate of return a firm would need to go forward with a project given the level of WacC. Drag the line on the left side to change the y-intercept of the Wacc une. Changes in the y-intercept often are caused by intlation or deflabion. Observe how changing the intercept influences the acceptance region and the rates of retum needed by the three firms. Drag the line on the right side to change the slope of the WaCC line. Changes in slope reflect risk, A steeper slope means there is greater risk, while a flatter slope means there is less risk. Observe how changes in risk (the slope of the line) influence the acceptance region and the rate of retum required by the three projects. Ch 10: Exploring Finance Visualizations - Risk and the Cost of Capital 1. A the y intercect changes, the relative differenges in the repiend rate of caturn for the three rak irveli. a. Remain the samh b. Increase c. Decrease d. Cannot determine 6. Remain the same b. Increase C. Decrease d. Cannot determine 10: Exploring Finance Visualizations - Project choice, Aisk and the Cost of Capital Conceptual Overview: Explore how the trade-off between risk and the cost of capital can be used to choose a project. The Ine reprosents WACC, the weighted average cost of capital as a function of risk. Theee firms or projects with the risk levels Riskt. (low). RiskA (average), and Riskt (high) ace highlighted. The vertical anis shows each project's expected rate of return. The area above the line is the "Acceptance Region." Projects in this region are expected to retum more than the weighted average cost of capital as a function of risk. The lower area is the "Rejoction Pegion." Projects in this region are expected to retum less than the weighted average cost of capital as a function of risk. The expected rate of cotum for the Low risk and High risk projects can be changed by dragging their dots up and down, Dmg them to see how they move from one tegion to the other. Ch 10: Exploring Finance Visualizations - Project Choice, Aick, and the Cost of Capiral 1. Drog the Low risk and High rek project points so their expected rates of return are 9% and 11%, respectively. if you could choose oely one project to go forward, which would you choose? a. Project Low becsuse its expected rate of return is higher than its wacC. b. Froject Averege because its expected rate of retum eractly equals its wacc. c. Project High because its expected rate of return is higher than for any of the other project. d. Any are good choices because the wacc bolances the rikk. 2. Now drang the Low risk and high risk project points so their expected rates of return ore 7w and 11%, respectively. If you could choose enly one profect 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 equais its wacc and the ochers are both belon their respective WacCs. c. Project regh because its expected rate of return is higher than for any of the other projects: d. Any are good choices becouse the Wact balances the risk. 3. Now drag the Low. risk and High risk project points so the expected rates of return are 104b for all the projecti. If you could choose only one project to go forward, which woild you choose? a. Project Low becouse its expected rate of retum for exceeds its wace. b. Project Average because its expected rate of retura exactly matches its WacC. c. Project High becasute its fate of return is belew its wAcc. d. Ary of the projects would be a good choice becaise they all ere expected to return 10%