Question

A proposed project has a positive NPV when evaluated at the company cost of capital. If...

A proposed project has a positive NPV when evaluated at the company cost of capital. If the firm employs debt in its capital structure, will the project remain acceptable after evaluation with the WACC?

A)

there will be no change in the project's NPV.

B)

the project may now become unacceptable.

C)

Yes, using the WACC will increase the NPV.

D)

No, using the WACC will decrease the NPV.

Which one?

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Answer #1

Ans C) Yes, using the WACC will increase the NPV.

A proposed project has a positive NPV when evaluated at the company cost of capital. If the firm employs debt in its capital structure, the project will remain acceptable after evaluation with the WACC using the WACC will increase the NPV.

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