Problem #3 (13 marks) Rublev Rollers Incorporated (RRI), an all-equity firm, is considering the following projects: Project Beta Expected Return A .80 10% B .90 12 1.45 13 D 1.60 15 RRI has a Beta of 1; the T-bill rate is 5 percent; and the expected return on the market is 11 percent. a) Which projects have a higher expected return than the firm's weighted average cost of capital? (3 marks) b) What return should each project earn based on its level of risk? Which projects should now be selected? (8 marks) c) Which projects would be incorrectly accepted or rejected if the firm's overall cost of capital were used as a hurdle (discount) rate? (2 marks) Problem #4 (8 marks) Korda International Inc. recently issued new securities (common shares and bonds) to finance a new project with a cost $16 million. The equity issued had a flotation cost of 8%, while the debt issued had a flotation cost of 2.5%. Total flotation cost of this new security issue was $1.2 million. If Korda International Inc. issued new securities in the same proportion as its target capital structure, what is the company's target debt to equity ratio?