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3. (Ch 10] An all-equity firm is considering the projects shown in the table below. The T-bill rate is 2% and the market risk premium
3. (Ch 10] An all-equity firm is considering the projects shown in the table below. The T-bill rate is 2% and the market risk premium is 5.5%. If the firm uses its current (composite) WACC of 7% (which it should NOT do because the WACC ignores risk) to evaluate these projects, which project(s), if any, will be INCORRECTLY rejected, and which projects, if any, will be INCORRECTLY accepted? [HINT: A picture might help you.] Project Beta 0.15 A Expected Return 2.25% 6.00% 7.75% 0.5 1.2 1.4 13.0%
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