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Downingtown Industries has an overall (composite) WACC of 10 percent. This cost of capital reflects the cost of capital for a Downingtown project with average

Downingtown Industries has an overall (composite) WACC of 10 percent. This cost of capital reflects the cost of capital for a Downingtown project with average risk; however, there are large risk differences among its projects. The company estimates that low-risk projects have a cost of capital of 8 percent and high-risk projects have a cost of capital of 12 percent. The company is considering the following projects:

ProjectExpected Return (IRR)Risk

A15%High

B12Average

C11High

D9Low

E6Low

Which of the projects should the company select to maximize shareholder wealth?

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