Question
5. The Wraith Food Company is an all equity financed firm. Its stock beta is 1.40, while the risk-free rate is 2% and the market
5. The Wraith Food Company is an all equity financed firm. Its stock beta is 1.40, while the risk-free rate is 2% and the market expected risk premium is 5%. The firms CFO considers several projects. He decides to follow the hurdle rate test, comparing the projects return to the firms cost of capital. Which of the projects will he reject incorrectly, and which will he accept incorrectly? Hint! You can present the hurdle rate decision side by side with the NPV or IRR decision. Conflict between the two method, will mark incorrect decision.
| Project Beta | project expected return | |
| A | 0.50 | 9.5% |
| B | 0.80 | 6.50% |
| C | 1.00 | 8.0% |
| D | 1.20 | 5.0% |
| E | 2.40 | 11.0% |
WHAT IS THE HURDLE RATE??
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Understanding Healthcare Financial Management
Authors: Louis C. Gapenski, George H. Pink
6th Edition
1567933629, 9781567933628
