Jeff Bezos has just promoted you to Chief Financial Officer of Amazon. You find on your desk plans for Amazons latest project: to corner the paper clip market by buying the worlds largest paper clip manufacturing company. Your financial analysts have determined that this project will be a lot less risky than any of Amazons other current operations, since paper clips will probably continue to be used at the current level well into the foreseeable future. Amazons overall WACC is 10%. Which of the following would be a reasonable course of action to take?

Multiple Choice

• Take 3 percentage points off the companys overall WACC, since this project is less risky than Amazons overall operations

• Use 10% as the projects WACC, since risk does not play a role in WACC

• Add 3 percentage points to the companys overall WACC, because lower risk would lead to a higher WACC

• Use an average of pure-play paper clip companys' WACC's as a proxy for this projects WACC

• Both A and D are reasonable courses of action for you to take