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 firm's 13 percent cost of capital?

b.Which projects should be accepted? Why?