The following table shows the risk classes of seven projects and the IRR estimates. The firms WACC is 18 percent. The firm has a policy of adding 3 percent to WACC for increasing level of risk and deduct 3 percent for the decreasing level of risk. The company has a policy of classifying capital budgeting projects in five risk groups, each group having a discount rate differential of 3 percent from the next group. Identify which projects are to be accepted and which are to be rejected. Provide detailed decision statement for projects individually.

Project Risk Class IRR

M Lowest 12.4 %

N Above Average 20.8 %

P Highest 25.9 %

Q Below Average 14.97%

R Average 18.9%

S Lowest 11.8%