An all-equity firm is considering the following projects:

Project Beta IRR

W .55 10.0%

X .90 10.5%

Y 1.10 14.0%

Z 1.50 17.0%

The T-bill rate is 5.0 percent and the expected return on the market is 12.0 percent.

a. Compared with the firm's 12 percent cost of capital, project W has a _________ (a. lower or b. higher) expected return, Project X has a _____(a. lower or b. higher)expected return , Project Y has a ______(a. lower or b. higher) expected return, and project Z has a _______(a. lower or b. higher) expected return.

b. Project W should be _______(a. accepted or b. rejected), Project X should be _______(a. accepted or b. rejected), Project Y should be _______(a. accepted or b. rejected), Project Z should be _______(a. accepted or b. rejected).

c. If the firm's overall cost of capital were used as a hurdle rate, Poject W would be ______(a. inncorrectly rejected, b. correctly rejected, c. correctly accepted), Project X would be ______(a. inncorrectly rejected, b. correctly rejected, c. correctly accepted), Project Y would be ______(a. inncorrectly rejected, b. correctly rejected, c. correctly accepted), Project Z would be ______(a. inncorrectly rejected, b. correctly rejected, c. correctly accepted)