An all-equity firm is considering the following projects IRR 10.2% 11.4 12.6 15.

Question

An all-equity firm is considering the following projects IRR 10.2% 11.4 12.6 15.1 Project Beta 80 90 1.10 1.35 The T-bill rate is 4 percent, and the expected return on the market is 12 percent. Required (a) Which projects have a higher expected return than the firm's 12 percent cost of capital? Project W has a (Click to select) expected return, Project X has a | (Click to select) | expected return, Project Y has a (Click to select)expected return, and Project Z has a (Click to select) expected return (b) Which projects should be accepted? Project W should be (Click to select) . Project X should be (Click to select) , Project Y should be (Click to select" , and Project Z should be (Click to select) Which projects will be incorrectly accepted/rejected or correctly accepted/rejected if the firm's overall (c) cost of capital were used as a hurdle rate? Project W would be (Click to select) , Project X would be (Click to select) would be(Click to select) , and Project Z would be (Click to select) , Project Y

Explanation / Answer

a) expected return of A = 10.40

for B = 11.20

for C = 12.80

for D = 14.80

lower, lower, higher, higher

b) rejected, accepted, rejected, accepted

c. rejected, rejected, accepted, accepted

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