WACCwhy do we use WACC rate for new projects? If the project's IRR doesnt earn a return equal to or higher than WACC, the corporation should abandon the project and invest money elsewhere.

. Capital Budgeting SetupInitial investment $65,000,000Straight-line depreciation of 20%Income tax rate = 20%

WACC: use 9%

Cash Flows (sales revenue based upon this purchase of new equipment, are projectedto be as follows): CF1: $15,000,000 CF2: $17,000,000 CF3: $18,000,000 CF4: $19,000,000 CF5: $18,000,000 Operating Costs CF1: $500,000 CF2: $500,000 CF3: $600,000 CF4: $500,000 CF5: $500,000

WACC Initial OutlayCF1CF2CF3CF4CF5 $0 Cash Flows (Sales) $ - $ - $ - $ - $ - - Operating Costs (excluding Depreciation) $ - $ - $ - $ - $ - - Depreciation Rate of 20% (5-Years) $ - $ - $ - $ - $ - Operating Income (EBIT) $ - $ - $ - $ - $ - - Income Tax (use 20%) $ - $ - $ - $ - $ - After-Tax EBIT $ - $ - $ - $ - $ - + Depreciation $ - $ - $ - $ - $ - Cash Flows$0 $ - $ - $ - $ -

$ -