An all-equity firm is considering the following projects: The T-bill rate is 5 percent, and the expected

Question:

An all-equity firm is considering the following projects:

Expected Return Project Beta .70 .85 10% 10.5 1.25 14 17 1.75

The T-bill rate is 5 percent, and the expected return on the market is 12 percent.
a. Which projects have a higher expected return than the firm’s 12 percent cost of capital?
b. Which projects should be accepted?
c. Which projects will be incorrectly accepted or rejected if the firm’s overall cost of capital were used as a hurdle rate?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...