Taylor Inc

question 84

Multiple Choice

Taylor Inc.estimates that its average-risk projects have a WACC of 10%, its below-average risk projects have a WACC of 8%, and its above-average risk projects have a WACC of 12%.Which of the following projects (A, B, and C) should the company accept?

• A) Project C, which is of above-average risk and has a return of 11%.
• B) Project A, which is of average risk and has a return of 9%.
• C) None of the projects should be accepted.
• D) All of the projects should be accepted.
• E) Project B, which is of below-average risk and has a return of 8.5%.

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Definitions:

Income From Operations

The profit realized from a business's core operations, excluding costs and expenses related to financing and investments.

Residual Income

The income that remains after subtracting all required costs of capital from operating profit, a measure of profitability.

Activity Base

A measure used to allocate costs in activity-based costing, reflecting the level of effort or consumption of resources.

Service Departments

Units within an organization that support other departments but do not directly contribute to revenue generation, such as IT and HR.