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XY has a weighted average cost of capital (WACC) of 10% based on its gearing level...

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XY has a weighted average cost of capital (WACC) of 10% based on its gearing level (measured as debt/debt+equity) of 40%.  It is considering a signficant new project. 

In which of the following situations would it be appropriate to appraise this project using XY's existing WACC of 10%?

A.

The project is in a different industry to XY's current operations and funded entirely by equity.

B.

The project is an extension of XY's current operations and is funded 40% by debt and 60% by equity.

C.

The project is an extension of XY's current operations and is funded by equal amounts of debt and equity.

D.

The project is in a different industry to XY's current operations and is funded by equal amounts of debt and equity.

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