4. Project cost of capital and investment decision: There are three independent projects. Each project has a cost of $1 million. The projects will use the same capital structure as the firm, and the same costs of debt and preferred stock. Common equity will come from reinvested profit (retained earnings), but this will need to be adjusted for project risk. Equity invested in Project A would have a beta of 0.5 and an expected return of 9.0%. Equity invested in Project B would have a beta of 1.0 and an expected return of 10.0%. Equity invested in Project C would have a beta of 2.0 and an expected return of 11.0%. Beta Expected return on project Risk Adjusted Discount Rate Investment Decision (Accept or Reject) ? ? ? Project A Project B Project C 0.5 1.0 9% 10% 11% 7.43% 7.93% 8.43% 2.0 Beta of firm is 0.91 weight of common stock is 50% Wacc= 8.68% cost of retained earnings= 11.49%