A firm is considering an average-risk project with an IRR of 6%.The firm's cost of debt (K_D)is 5%,its cost of equity (K_E)is 12%,and its tax rate (t)is 20%.The target debt ratio (D/(D+E))for the project,in market values,is 0.5.The firm should: A) accept the project only if it can be completely financed with equity B) accept the project only if it can be completely financed with debt C) accept the project regardless of the financing method D) reject the project regardless of the financing method

Question

Quizplus · Accepted Answer

The project's IRR is lower than the weighted average cost of capital (WACC), indicating it will not generate a return above the firm's cost of capital.

A Firm Is Considering an Average-Risk Project with an IRR