A firm has divisions in three different industries - mining, banking and pharmaceuticals. It is considering three projects, one in each industry. The following table shows the Internal Rate of Return of each project, along with the cost of capital for each industry (based on the typical betas of firms operating wholly within those industries). The firm's weighted average cost of capital is 6.7%. Project Industry IRR Cost of Capital A Mining 10.3% 9.7% В Banking 8.5% 8.2% C Pharmaceuticals 13.4% 13.9%
A firm has divisions in three different industries - mining, banking and pharmaceuticals. It is considering three projects, one in each industry. The following table shows the Internal Rate of Return of each project, along with the cost of capital for each industry (based on the typical betas of firms operating wholly within those industries). The firm's weighted average cost of capital is 6.7%. Project Industry IRR Cost of Capital A Mining 10.3% 9.7% В Banking 8.5% 8.2% C Pharmaceuticals 13.4% 13.9%
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
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Transcribed Image Text:A firm has divisions in three different industries - mining, banking and pharmaceuticals. It is considering three projects, one in each industry. The following
table shows the Internal Rate of Return of each project, along with the cost of capital for each industry (based on the typical betas of firms operating
wholly within those industries). The firm's weighted average cost of capital is 6.7%.
Project
Industry
IRR
Cost of Capital
A
Mining
10.3%
9.7%
Banking
8.5%
8.2%
C
Pharmaceuticals
13.4%
13.9%
Which projects should the firm accept?
a. The firm should accept one project - Project A.
O b. The firm should accept one project - Project B.
c. The firm should accept one project - Project C.
O d. The firm should accept 2 projects - Projects A and B.
e. The firm should accept 2 projects - Projects B and C.
O f. The firm should accept 2 projects - Projects A and C.
g.
The firm should accept all 3 projects.
O h. The firm should not accept any of the projects.
Clear my choice
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