Represents company cost of capital

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Reference no: EM132071125

1. Consider the following project. You invest $675 in an equipment project that earns you $100 in cash flows for five years. At the end of five years, you sell the equipment for $500. Assume a cost of capital of 10%. Assume a 0% tax rate. Assume the 10 year Treasury rate is 3%.

Invest because the project has an IRR of 20% which is above your cost of capital

Invest because the project has a positive NPV of around $15

Invest because the positive cash flows exceed the total relevent costs

Do not invest because the NPV is negative

2. WAAC is an important concept because it represents a company's cost of capital; any project that it undertakes should have a return that exceeds its WAAC.

True

False

Reference no: EM132071125

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