4. Dan Franklin, president of Magnotech, Inc. and a director of Nysa, has called Knudsen's attention to the hurdle rate of 16 percent (Nysa's cost of capital currently used for all projects). Since the IRRs of all five projects exceed 16 percent, he asks why, especially in view of Nysa's ample cash flows and funds for investment, all of the projects should not be accepted? Knudsen, like Matlock, disagrees with this thinking, contending that none of the "foreign aid" projects gives Nysa an adequate return for the amount of risk the company would be taking. Knudsen plans to support his position by referring to Fig. 1, which shows that, while all four projects' returns lie above the line representing Nysa's weighted average cost of capital (ka), they are below the security market line (SML), which represents the minimum amount of return that a firm should require for a specified amount of risk. Of course, the oil project cannot be accepted unless at least one of the "foreign aid" projects is accepted in conjunction with it.