Hanson Aluminum, Inc. is considering whether to build a mill based around a new roiling technology the company has been developing. Management views this project as being riskier than the average project the company undertakes. Based on their analysis of the projected cash flows, management determines that the project’s internal rate of return is equal to the company’s marginal cost of capital If the project goes forward, the company will finance it with newly issued debt. Should management accept or reject this project（）
A. Accept, because the project returns the company’s cost of capital.
B. Accept, because the marginal cost of the new debt is less than the project’s internal rate of return.
C. Reject, because the project reduces the value of the company when its risk is taken into account.
参考答案：C
解析：
The marginal (or weighted average) cost of capital is the appropriate discount rate for projects that have the same level of risk as the firm’s existing projects. For a project with a higher degree of risk, cash flows should be discounted at a rate higher than the firm’ s WACC. Since this project’s IRR is equal to the company’s WACC, its NPV must be zero if the cash flows are discounted at the WACC. If the cash flows are discounted at a rate higher than the WACC to account for the project’s higher risk, the NPV must be negative. Therefore, the project would reduce the value of the company, so management should reject it. Choice B is incorrect because a company considers its capital raising and budgeting decisions independently. Each investment decision must be made assuming a WACC which includes each of the different sources of capital and is based on the long-run target weights.