Problem:
Explain the following. A company estimates that an average-risk project has a cost of capital of 8 percent, a below-average risk project has a cost of capital of 6 percent, and an above-average risk project has a cost of capital of 10 percent. Which of the following independent projects should the company accept? Project A has below-average risk and a return of 6.5 percent. Project B has above-average risk and a return of 9 percent. Project C has average risk and a return of 7 percent.