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A company is financed with equity only, and its cost of capital is 1 4 % and beta is 1 . 2 . The company
A company is financed with equity only, and its cost of capital is and beta is The
company is considering two projects A and B Project A has a beta of and an estimated
return of Project B has a beta of and an estimated return of The market risk
premium is and Tbills are yielding
a If you use the WACC as the hurdle rate, which project would you accept or reject?
b What project would you accept or reject based on the Security Market Line?
c Which project would be incorrectly accepted or rejected if we use the WACC as the
hurdle rate?
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