A firm has diVISion in two different industries - clotning and tourism. It is considering two projects, one in each industry. The following table shows the typical beta of firms operating wholly within those industries, along with the Internal Rate of Return of each project. The risk free rate of return is 3.3% and the expected return on the market is 12.2%. Project Industry Beta IRR A Clothing 0.9 11.61% Tourism 1.7 17.93% What is the appropriate cost of capital to use as a discount rate to evaluate these projects?
A firm has diVISion in two different industries - clotning and tourism. It is considering two projects, one in each industry. The following table shows the typical beta of firms operating wholly within those industries, along with the Internal Rate of Return of each project. The risk free rate of return is 3.3% and the expected return on the market is 12.2%. Project Industry Beta IRR A Clothing 0.9 11.61% Tourism 1.7 17.93% What is the appropriate cost of capital to use as a discount rate to evaluate these projects?
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
Problem 1PS
Related questions
Question
100%
(3.3 question)
Please provide step by step explaination
Transcribed Image Text:A firm has division in two different industries - clothing and tourism. It is considering two projects, one in each industry. The following table shows the
typical beta of firms operating wholly within those industries, along with the Internal Rate of Return of each project. The risk free rate of return is 3.3% and
the expected return on the market is 12.2%.
Project
Industry
Beta
IRR
A
Clothing
0.9
11.61%
В
Tourism
1.7
17.93%
What is the appropriate cost of capital to use as a discount rate to evaluate these projects?
О а. Project A: 14.3%
Project B: 24.0%
O b. Project A: 11.3%
Project B: 24.0%
О с. Project A: 11.3%
Project B: 18.4%
O d. Project A: 14.3% Project B: 18.4%
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education