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Required rate of return whitewater

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Reference no: EM132351139

Whitewater Company is evaluating a new project that has an initial cost of $1 million. If the project gets accepted, Whitewater plans to borrow $1 million from a local bank in order to finance this project. The following information is available for Whitewater Company:

  • Cost of Equity: 14%
  • Cost of Debt: 7%
  • WACC: 12%

Which of the following statements is true regarding the required rate of return Whitewater should use when evaluating this project?

  • Whitewater should use a required rate of 14% if this project is perceived to be less risky than the companyâs existing assets
  • Whitewater should use a required rate of 7% because this project will be fully financed by debt
  • Whitewater should use a required rate of 12% if this project is perceived to be as risky as the companyâs existing assets
  • All the above statements are true
  • Neither of the above statements is true. Whitewater should use the NPV to evaluate this project.

Reference no: EM132351139

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