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 companyĆ¢s 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 companyĆ¢s 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