17. SML and WACC: Projects Beta An all-equity firm is considering the following projects: Expected Return Alpha 0.50 9% Suppose that: Beta 0.85 10.5% The T-bill rate = 5% Gamma 1.30 14% - The expect return on the market = 12% Phi 1.75 17% •Which projects have a higher expected return than the firm's 12% cost of capital? Answer: •Which projects should be accepted? Answer: •Which projects will be incorrectly accepted or rejected if the firm's overall cost of capital were used as a hurdle rate? Answer:
17. SML and WACC: Projects Beta An all-equity firm is considering the following projects: Expected Return Alpha 0.50 9% Suppose that: Beta 0.85 10.5% The T-bill rate = 5% Gamma 1.30 14% - The expect return on the market = 12% Phi 1.75 17% •Which projects have a higher expected return than the firm's 12% cost of capital? Answer: •Which projects should be accepted? Answer: •Which projects will be incorrectly accepted or rejected if the firm's overall cost of capital were used as a hurdle rate? Answer:
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:17. SML and WACC:
Projects
Beta
An all-equity firm is considering the following projects:
Expected
Return
Alpha
0.50
9%
Suppose that:
Beta
0.85
10.5%
The T-bill rate = 5%
Gamma
1.30
14%
- The expect return on the market = 12%
Phi
1.75
17%
•Which projects have a higher expected return than the firm's 12% cost of capital?
Answer:
•Which projects should be accepted?
Answer:
•Which projects will be incorrectly accepted or rejected if the firm's overall cost of capital were
used as a hurdle rate?
Answer:
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