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:

Machine-Hours

A measure of production time that indicates the total hours a machine is in operation during a specific period.

Forming Department

A segment within a manufacturing facility where raw materials are shaped and formed into products.

Assembly Department

A segment of a manufacturing site dedicated to constructing end products from various components.

Predetermined Overhead Rate

A rate calculated before a period begins, used to allocate manufacturing overhead costs to products based on a certain activity base, such as labor hours or machine hours.