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Superlnc. uses a risk-adjustment when evaluating projects of different risk. Its overall (composite) WACC is 7%, which reflects the cost of capital for its average
Superlnc. uses a risk-adjustment when evaluating projects of different risk. Its overall (composite) WACC is 7%, which reflects the cost of capital for its average asset. Its assets vary widely in risk, and Superinc. evaluates low-risk projects with a risk-adjusted project cost of capital of 6.5%, average-risk projects at 7%, and high-risk projects at 7.5%. Should the following project be adopted if risk is low, average, or high? 4 $325 5 $400 Time 0 1 2 3 CF $1,000 $125 $200 $250 Adopt only if risk is low Adopt if risk is low or average Adopt at any of these risk levels Do not adopt under any of these risk levels
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