Puckett Inc

question 76

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:

Perfect Competition

A theoretical market structure characterized by an infinite number of small firms, homogeneous products, no barriers to entry or exit, and perfect information, leading to optimal distribution of resources.

Monopolistic Competition

A market structure where many firms sell products that are similar but not identical, allowing for some degree of market power.

Differentiated Products

Goods or services that are distinguished from similar products based on quality, brand, design, or features, leading to non-price competition among firms.

Advertising

A marketing strategy involving the public promotion of products, services, or brands through various media channels to attract consumer interest.