(select all that apply)

Smol-Kitchen Inc. has a WACC of about 9%. Specifically, its capital structure contains $1 million in equity financing with the cost of equity at 15% and $1 million in debt financing with the cost of debt of 5%. The tax rate is 40%. Smol-Kitchen Inc. is considering a project that is much riskier than typical projects in which Smol-Kitchen participates. Accordingly, it is considering an adjustment factor of 3% for this project. Should Smol-Kitchen undertake this new project if the project has an IRR of 7%?

Group of answer choices

No, this project will have a negative NPV, since the appropriate discount rate (adjusted WACC) is higher than IRR

Yes, the firm can finance this project by using only debt financing

Yes, since the IRR of this project is higher than Smol-Kitchens adjusted WACC

No, since the cost of equity at 15% is higher than the return of this project