6. An all-equity firm is considering the following projects. The T-bill rate (risk-free rate) is 3.5 percent, and the expected return on the market is 11 percent. Project W Beta 80 95 1.15 1.45 IR 9.4% 10.9% 13.0% 14.2% Y • Which projects have a higher expected return than the firm's 11 percent overall cost of capital? • Which projects should be accepted according to the risk (beta) of the project?
6. An all-equity firm is considering the following projects. The T-bill rate (risk-free rate) is 3.5 percent, and the expected return on the market is 11 percent. Project W Beta 80 95 1.15 1.45 IR 9.4% 10.9% 13.0% 14.2% Y • Which projects have a higher expected return than the firm's 11 percent overall cost of capital? • Which projects should be accepted according to the risk (beta) of the project?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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
Transcribed Image Text:6. An all-equity firm is considering the following projects. The T-bill rate (risk-free rate) is 3.5 percent,
and the expected return on the market is 11 percent.
Project
Beta
IRR
9.4%
10.9%
W
80
X
.95
1.15
1.45
Y
13.0%
14.2%
• Which projects have a higher expected return than the firm's 11 percent overall cost of capital?
• Which projects should be accepted according to the risk (beta) of the project?
• Which projects would be incorrectly accepted or rejected if the firm's overall cost of capital was used
as a hurdle rate?
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