Your company has three projects, A, B, and C, and is trying to decide which projects to invest in. Your company estimates that project A will have an IRR of 12%, project B will have an IRR of 14%, and project C will have an IRR of 15%. Project A is from a department with below average risk, Project B is from a department of average risk and project C is from a department with above average risk. The company can acquire enough funding to fund all three projects; however it is not sure which WACC to be used to evaluate each project. The company is considering two choices. Option one, the company can use one WACC, the WACC for an average department, to evaluate all three projects, which is 13.5%. Options two, the company can use different WACCs to evaluate projects from different departments. Under the second approach, the company estimates that it will add 2% to the average WACC for projects with above average risk and deduct 2% from the average WACC for projects with below average risk. Based on your knowledge from the class, which option is the correct one and based on it which project should the company choose?

Project A

Project B and Project A

All Three Projects

Project B

Project C