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An all-equity firm is considering the following projects: Project Beta IRR A 0.75 8.4% B 0.95. 12.6% C 1.15 13.5% D 1.32 14.5% E 1.45

  1. An all-equity firm is considering the following projects:

Project

Beta

IRR

A

0.75

8.4%

B

0.95.

12.6%

C

1.15

13.5%

D

1.32

14.5%

E

1.45

15.9%

The T-bill rate is 3 percent, and the expected return on the market is 12 percent.

a. Which projects have a higher expected return than the firms 13 percent cost of capital?

b. Which projects should be accepted? Why?

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