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Cost of Capital and capital budget An all equity financed firm is considering the following projects project beta IRR W 0.75 10% X 0.9 10.2%

Cost of Capital and capital budget

An all equity financed firm is considering the following projects

project

beta

IRR

W

0.75

10%

X

0.9

10.2%

Y

1.2

12%

Z

1.5

15%

Risk free rate is 5% and market risk premium is 6%.

If the firms overall cost of equity is 11%, which projects should be accepted

Which projects have higher risk than the companys overall risk

Adjust for project risk, which projects should be accepted.

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