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Whitewater Company is evaluating a new project that has an initial cost of $1 million If the project gets

Question

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.

Finance

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