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:

GDP Gap

The amount of production by which potential GDP exceeds actual GDP.

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The total demand for all goods and services in an economy at a given overall price level and within a specific time period.

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The situation in which individuals who are capable of working and actively seeking work are unable to find employment.