Puckett Inc

question 24

Multiple Choice

Puckett Inc.risk-adjusts its WACC to account for project risk.It uses a WACC of 8% for below-average risk projects,10% for average-risk projects,and 12% for above-average risk projects.Which of the following independent projects should Puckett accept,assuming that the company uses the NPV method when choosing projects?

• A) Project B, which has below-average risk and an IRR = 8.5%.
• B) Project C, which has above-average risk and an IRR = 11%.
• C) Without information about the projects' NPVs we cannot determine which project(s) should be accepted.
• D) All of these projects should be accepted.
• E) Project A, which has average risk and an IRR = 9%.

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Definitions:

Bone Tissue

A hard, dense connective tissue forming the structure of the skeleton and providing support and protection for the body.

F-distribution

A continuous probability distribution that arises frequently as the null distribution of a test statistic, especially in ANOVA and regression analysis.

Critical Value

A critical value is a point on the test distribution that is compared to the test statistic to determine whether to reject the null hypothesis.

Upper Tail Area

Upper tail area refers to the region in the tail of a probability distribution, beyond a certain point, used to calculate probabilities in related statistical tests.