An all-equity firm is considering the following projects: Project Beta IRR W .83 9.4% .92 11.6 1.09 12.9 1.35 14.1 Y The T-bill rate is 4 percent, and the expected return on the market is 12 percent. a. Compared with the firm's 11 percent cost of capital, Project W has a expected return, Project X has a expected return, Project Y has a expected return, and Project Z has a expected return. Project X should be b. Project W should be and Project Z Project Y should be should be

An all-equity firm is considering the following projects: Project Beta IRR W .83 9.4% .92 11.6 1.09 12.9 1.35 14.1 Y The T-bill rate is 4 percent, and the expected return on the market is 12 percent. a. Compared with the firm's 11 percent cost of capital, Project W has a expected return, Project X has a expected return, Project Y has a expected return, and Project Z has a expected return. Project X should be b. Project W should be and Project Z Project Y should be should be

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 6P

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An all-equity firm is considering the following projects: Project Beta IRR W .67 9.5 % X .74 10.6 Y 1.37 14.1 Z 1.48 17.1 The T-bill rate is 5.1 percent, and the expected return on the market is 12.1 percent. a. Which projects have a higher/lower expected return than the firm’s 12.1 percent cost of capital?
An all-equity firm is considering the projects shown below. The T-bill rate is 4 percent and the market risk premium is 7 percent. If the firm uses its current WACC of 12 percent to evaluate the projects, which project(s), if any, will be incorrectly accepted? Expected Return Beta Project A 8.0% 0.5 Project B 19.0% 1.2 Project C 13.0% 1.4 Project D 17.0% 1.6
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