SML and WACC [LO1] An all-equity firm is considering the following projects: Project W X Y Z Beta 0.80 0.90 1.45 1.60 Expected Return 10% 12 13 15 The T-bill rate is 5 percent, and the expected return on the market is 11 percent. a. Which projects have a higher expected return than the firm's 11 percent cost of capital? b. Which projects should be accepted? c. Which projects would be incorrectly accepted or rejected if the firm's overall cost of capital were used as a hurdle rate?

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
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SML and WACC [LO1] An all-equity firm is considering the following projects:
Project
W
X
Y
Z
Beta
0.80
0.90
1.45
1.60
Expected Return
10%
12
13
15
The T-bill rate is 5 percent, and the expected return on the market is 11 percent.
a. Which projects have a higher expected return than the firm's 11 percent cost of
capital?
b. Which projects should be accepted?
c. Which projects would be incorrectly accepted or rejected if the firm's overall
cost of capital were used as a hurdle rate?
Transcribed Image Text:SML and WACC [LO1] An all-equity firm is considering the following projects: Project W X Y Z Beta 0.80 0.90 1.45 1.60 Expected Return 10% 12 13 15 The T-bill rate is 5 percent, and the expected return on the market is 11 percent. a. Which projects have a higher expected return than the firm's 11 percent cost of capital? b. Which projects should be accepted? c. Which projects would be incorrectly accepted or rejected if the firm's overall cost of capital were used as a hurdle rate?
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