Suppose that your company’s weighted-average cost of capital is 9 percent. Your company is planning to undertake a project with an internal rate of return of 12%, but you believe that this project is...

Running Head: ACCOUNTING
ACCOUNTING 5
ACCOUNTING
    
Current Target WACC
    9%
    It can be said that the weighted average cost of capital is the rate that a firm is mainly expected to pay on average to all of the security holders for financing its assets. Furthermore, it can be also said that the firms can use WACC for seeing if the investment projects are available to them means something for the undertaking.
In general terms it can be said that this is also one of the main inputs in the discounted cash flow analysis as well as is also the topic of the technical investment banking interviews.
In terms of calculating the WACC the finance professionals have two main choices in terms of assuming the current mix of the firm in terms of equity capital and debt that will be persisting in the future. It is regarded as one of the most common approach. The next one is to assume various capital structures and a firm must remember that WACC is a significant forecast as the discount rate is computed that must be applied to the cash flows of the future.
    
    
    
    New Project- IRR
    12%
    The internal rate of return is mainly the metric that is used for the financial analysis for estimating the profitability in terms of the significant investments.
In other words IRR is also used by the firms for analysing as well as deciding on the capital projects.
For instance- a firm might evaluate an investment in a new plant vs. expanding a plant that is expanding based on the IRR of every project.
It is needless to say that the higher the IRR the better the expected performance of the project as well as more return the project can bring to the firm.
A firm might choose a project that is quite large with a low IRR as it tends to generate a great amount of cash flow when contrasted with a small project with a huge IRR. However, the decision making procedure in terms of accepting or rejecting a project is regarded as the IRR rule (Monnappa, 2020).
Throwing light on the above-mentioned discussion it can be said that but as the project is tempted with a huge amount of IRR, it is advised to the company for checking those interim cash flows in a detailed manner:
· The weakness in terms of using the IRR return for assessing the capital projects- There are some of the typical calculations of the IRR concerning building in the reinvestment perceptions that make the bad projects look excellent and the great projects look greatest. IRR never allures and it naturally offers...