What Decision Should Be Made on a Project with Above-Average

question 11

Multiple Choice

What decision should be made on a project with above-average market risk?

• A) Accept if the cash flows discounted at the WACC have a positive NPV.
• B) Discount the cash flows at the IRR and accept if NPV is positive.
• C) Accept if the IRR is greater than the WACC.
• D) Use a higher discount rate than the WACC to reflect the project's risk and accept if NPV is positive at this higher discount rate.

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Definitions:

Materials

The physical commodities used in the production of goods, ranging from raw materials to fully fabricated components.

Spending Variance

The difference between the actual spending and the budgeted or planned spending amount in a given period.

Medical Supplies

Products and equipment used in healthcare practices for treatment, diagnosis, or preventive care purposes.

Activity Variance

A disparity that arises when the actual level of business activity differs from what was planned or expected.