Given are the question with sample answer. Now I'm looking for a short and nice answer which disagreed with the answer given below.

Question : Suppose that your company's weighted-average cost of capital is 11 percent. Your company is planning to undertake a project with an internal rate of return of 14 percent, but you believe that this project is not a wise investment for the firm. What logical arguments might you use to convince your boss to forego the project despite its high rate of return? Is it possible that making investments with expected returns higher than your company's cost of capital will destroy value? If so, how?

Answer :

Most of the businesses will take into consideration on how the profitable of an investment will benefit to them. In the above case study mentioned that the Internal Rate of Return (IRR) is 14 percent. Meanwhile, the company's Weighted-Average cost of Capital (WACC) is 11 percent. From this percentage, we can assume that of the management should undertake the project because the project looks profitable.

Weighted-average cost of capital WACC is one of the financial instruments that can be used by the company to measure its cost of capital across all sources, including bonds, common stocks, preferred stocks and debt. Each types of cost are weighted by its percentage of the total capital and they were summed together. WACC of a firm is the average cost it pays by the company for the money it needs to operate the business. It is also the minimum average rate of return it has to achieve on its assets in order to satisfy the investors. In other words, the cost paid to operate the business should approximately equivalent to the rate of return earned. If the WACC of a company is high, it shows that the company is spending a disproportionately big amount of money to obtain the capital, which means that the company may be risky. A lower WACC, on the other hand, shows that the company raises capital at a low cost.

Meanwhile, the Internal Rate of Return IRR is a financial indicator that can be used by a company to determine the profitability of a potential investment. Generally, the higher the internal rate of return, the more attractive the investment. When a company wants to compare the investment options, then the investment with the highest IRR will be the best choice. A company's decision to accept or reject a project will be based on the IRR. If new project has IRR exceeds the company's WACC, that project will almost certainly be approved. If the IRR below than the WACC, the project should be rejected.

if a company has Weighted Average Cost of Capital 11%, a proposed project must have an Internal Rate of Return of 11% or higher to value-added to the company. If a proposed project yields an Internal Rate of Return is lower than 11%, the company's cost of capital is more than the expected return from the proposed project or investment.Hence, for this case study, we can conclude that, the company should undertake the project since the Internal Rate of Return was higher that the WACC.