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The firms project CVs generally range from 1.0 to 1.5. A 3% risk premium is added to the WACC if the initial CV exceeds 1.5,
The firms project CVs generally range from 1.0 to 1.5. A 3% risk premium is added to the
WACC if the initial CV exceeds 1.5, and the WACC is reduced by 0.5% if the CV is 0.75 or less. Then a revised NPV is calculated. What WACC should be used for this project when project risk has been properly considered? What are the revised values for the NPV, standard deviation, and coefficient of variation? Would you recommend that the project be accepted? Why or why not?
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