Problem 18 Project discount Rate. University Products is evaluating a new venture into home computer systems. The internal rate of return on the news…

Problem 18Project discount Rate. University Products is evaluating a new venture into home computer systems. The internal rate of return on the news venture is estimated at 13.4%. WACCs of firms in the personal computer industry tend to average around 14%. Should the new project be persued? Will University Products make the correct decision if it discounts cash flows on the proposed venture at the firm’s WACC? (LO4)

SOLUTION:Every capital project is discounted at the weighted average cost of capital of the company. It isthe minimum expected return which the company expects from its investment. If the company…