A & E Ltd$.$ is an all equity financed company with a cost of capital of $18\mathrm{.}5\%.$

The company is considering the following one year investment projects. The

risk free rate of return is $8\%$ and the market rate of return is $15\%.$

Required: $($i$)$ Compute the beta factor of A & E Ltd$,($ii$)$ Determine the

required rate of return and the expected return of each of the above project

indicating which project the company should undertake and which ones to

reject, $($iii$)$ Compute the beta factor of a portfolio of investment in the

accepted projects.

Project Outlay

Ksh $000$

Annual Cash inflows

Ksh $000$

Beta Factor

A $1,0001,0950\mathrm{.}3$

B $1,0001,1300\mathrm{.}5$

C $1,5001,7801\mathrm{.}0$

D $2,0002,3851\mathrm{.}5$

E $2,0002,4002.$