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An all-equity firm is considering the following projects: Project Beta IRR W .66 9.5 % X .73 10.5 Y 1.35 14.0 Z 1.46 17.0 The

An all-equity firm is considering the following projects:

Project Beta IRR
W .66 9.5 %
X .73 10.5
Y 1.35 14.0
Z 1.46 17.0

The T-bill rate is 5 percent, and the expected return on the market is 12 percent.

a.

Compared with the firm's 12 percent cost of capital, Project W has a (Click to select)lowerhigher expected return, Project X has a (Click to select)lowerhigher expected return, Project Y has a (Click to select)lowerhigher expected return, and Project Z has a (Click to select)higherlower expected return.

b.

Project W should be (Click to select)rejectedaccepted, Project X should be (Click to select)rejectedaccepted, Project Y should be (Click to select)rejectedaccepted, and Project Z should be (Click to select)rejectedaccepted.

c.

If the firm's overall cost of capital were used as a hurdle rate, Project W would be (Click to select)incorrectly acceptedincorrectly rejectedcorrectly rejectedcorrectly accepted, Project X would be (Click to select)incorrectly rejectedincorrectly acceptedcorrectly acceptedcorrectly rejected, Project Y would be (Click to select)incorrectly rejectedcorrectly acceptedcorrectly rejectedincorrectly accepted, and Project Z would be (Click to select)correctly acceptedincorrectly rejectedincorrectly acceptedcorrectly rejected.

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