Reavers Inc is an all equity financed firm. Its stock beta is $1\mathrm{.}40,$ while the risk$-$free

rate is $2\%$ and the market expected risk premium is $5\%.$ The firm's CFO considers

several projects. He decides to follow the hurdle rate test, comparing the project's return

to the firm's cost of capital. Which of the projects will he reject incorrectly and which

will he accept incorrectly? Hint! You can present the hurdle rate decision side by side

with the NPV or IRR decision. Conflict between the two method, will mark incorrect

decision.