Question
An all-equity firm is considering the following projects: Project Beta IRR X .87 9.7% Y 1.13 12.1% The risk-free rate is 4.2%, and the expected
An all-equity firm is considering the following projects:
| Project | Beta | IRR |
| X | .87 | 9.7% |
| Y | 1.13 | 12.1% |
The risk-free rate is 4.2%, and the expected return on the market is 11.2%.
A. Which projects have a higher/lower expected return than the firm's 11.2% cost of capital?
B. Using CAPM/SML to evaluate, which projects should be accepted or rejected?
C. Which projects will be incorrectly accepted/rejected or correctly accepted/rejected if the firm's cost of capital were used as a hurdle rate?
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Rogue Traders
Authors: Scott E.D. Skyrm
1st Edition
9781590190012
