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An all-equity firm is considering the following projects:

Project: W Beta 0.80 IRR 9.4% ; X Beta 0.95 ,IRR 10.9% ; Y Beta 1.15, IRR13.0% ; Z Beta 1.45 , IRR 14.2% ; The T-Bill rate is 3.5% and the expected return on the market is 11%.

a) The company has an overall cost of capital of 11%. Which of these projects have an expected return higher than the company’s overall cost of capital?

b) Which projects should be accepted?

c) Which projects would be incorrectly accepted or rejected is the firm’s overall cost of capital were used as a hurdle rate?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91590128

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