An Evaluation of Four Independent Capital Budgeting Projects by the Director

Multiple Choice

An evaluation of four independent capital budgeting projects by the director of capital budgeting for Ziker Golf Company yielded the following results:
$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Internal rate of }$
$\begin{array}{ccc} \underline{\text { Project }}& \underline{\text { of return, IRR }} &\underline{\text { Risk level }}\\\mathrm{L} & 19.0 \% & \text { Average } \\\mathrm{E} & 15.0 & \text { High } \\\mathrm{M} & 12.0 & \text { Low } \\\mathrm{Q} & 11.0 & \text { Average }\end{array}$ The firm's weighted average cost of capital is 12 percent.Ziker Golf generally evaluates projects that are riskier than average by adjusting its required rate of return by 4 percent, whereas projects with less-than-average risk are evaluated by adjusting the required rate of return by 2 percent.Which project(s) should the firm purchase?

A) Project L
B) Projects L and E
C) Projects L and M
D) Projects L, E, and M
E) None of the above is a correct answer.