4. Integrated Oil & Gas (IOG) is considering three projects P1, P2, and P3. The budgeting manager, Ashley,

   estimates the betas of these projects and their IRRs (Internal Rates of Return) as follows:

   Ashley forecasts the expected return on the market is 15% and the expected risk-free rate is 6%. Ashley determines IOGs WACC to be 14%.

   1. a) If Ashley ignores risk and uses the IRR as basis for acceptance or rejection, which projects would be accepted? (3 marks)

   2. b) Considering risk, which projects should be accepted and which should be rejected? Explain why. (6 marks)

Project	P1	P2	P3
Beta	1.60	1.10	0.68
IRR	18%	16%	13%