Which set of projects should be accepted

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Midwest Water Works estimates that its WACC is 10.5%. The company is considering the following capital budgeting projects:

Project                Size               Rate of Return

A                        $1 million           12.0%
B                         $2 million           11.5%
C                        $2 million               11.2%
D                       $2 million                 11.0%
E                        $1 million               10.7%
F                      $1 million                  10.3%
C                       $1 million                   10.2%

Question 1: Assume that each of these projects are just as risky as the firm's existing assets and that the firm may accept all the projects or only some of them. Which set of projects should be accepted? Why?

Question 2: Patton Paints Corp has a target capital structure of 40% debt and 60% common equity with no preferred stock. It's before tax cost of debt is 12% and it's tax rate is 40%. Its cost of equity is estimated to be 17%. What is it's WACC?

Reference no: EM132873245

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