Calculate the weighted average cost of capital, Finance Basics

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Company XYZ stock is considering the two new projects, Project A and Project B. The two projects have similar risk characteristics as the existing business. The managers forecast the following investment outlay and cash flows.

1. If Project A and Project B are independent, what is your recommendation on the projects?

2. How do you rank the two projects based on the following criteria:

(a) Regular payback and discounted payback

(b) NPV

(c) IRR

(d) Profitability index

3. If Project A and Project B are mutually exclusive, what is your recommendation?

4. If the WACC changes due to either Fed interest rate policy or the returns required by the investors, should your recommendations change?


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