Firms overall cost of capital were used as hurdle rate

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Reference no: EM13915328

An all-equity firm is considering the following projects:

Project Beta Internal Rate of Return

W .75 8.9%

X .90 10.8%

Y 1.15 12.8%

Z 1.45 13.9%

The T-bill rate is 4%, and the expected return on the market portfolio is 11%. a. Which projects have the higher expected return than the firm’s 11% 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 (11%) were used as a hurdle rate?

Reference no: EM13915328

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