A firm is considering the following four independent projects: Project Beta of p

Question

A firm is considering the following four independent projects:

Project        Beta of project         IRR

A                     0.9 11%

B                      2.0                     19%

C                    1.0                      14%

D                    0.4                      10%

The risk-free rate is 5%, the expected market return is 15%. The firm's WACC is 13%. Which of the following statements is correct (true)?

Reject project A

Accept projects B and C only

Accept project D only

Accept project B only

Accept all projects

Explanation / Answer

required return on A = 5% + 0.9*10% = 14%........reject

required return on B = 5% + 2*10% = 25%.......reject

required return on D = 5% + 0.4*10% = 9%

so the statement that are coreect are:

Reject project A

Accept project D only

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