SML and Cost of Capital An all-equity firm is considering the following projects: Project Beta Expected Return

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SML and Cost of Capital An all-equity firm is considering the following projects:

Project Beta Expected Return A 0.6 11%

B 0.9 13%

C 1.2 14%

D 1.7 16%

The expected return on the market is 12 per cent, and the current rate on UK gilts is 5 per cent.

(a) Which projects have a higher expected return than the firm’s 12 per cent cost of capital?

(b) Which projects should be accepted?

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

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Corporate Finance

ISBN: 9781526848093

4th Edition

Authors: David Hillier

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Question Posted: Jul 19, 2024 06:00 PM

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SML and Cost of Capital An all-equity firm is considering the following projects: Project Beta Expected Return

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Corporate Finance

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