An all equity firm is considering the following projects The T bill rate is 4 percent, and the expected return on the market is 11 percent a Which projects have a higher expected return than the firms 11 percent cost of capital b Which projects should be accepted c Which projects would be incorrectly accepted or rejected if the firms overall cost of capital were used as a hurdlerate Project IRR Beta 60 85 1 15 1 45 8 8 9 5 11 9 15 0

Question: An all-equity firm is considering the following projects: The T-bill rate is 4 percent, and the expected return on the market is 11 percent. a.

An all-equity firm is considering the following projects:

The T-bill rate is 4 percent, and the expected return on the market is 11 percent.
a. Which projects have a higher expected return than the firmâ€™s 11 percent cost of capital?
b. Which projects should be accepted?
c. Which projects would be incorrectly accepted or rejected if the firmâ€™s overall cost of capital were used as a hurdlerate?

Project IRR Beta .60 .85 1.15 1.45 8.8% 9.5 11.9 15.0

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