An all-equity firm is considering the following projects:
Project Beta IRR
W .61 9.1%
X .85 10.5
Y 1.17 14.0
Z 1.55 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
expected return, Project X has a
expected return, and Project Z has a
expected return, Project Y has a
expected return.
b. Project W should be
Project X should be
Project Y should be
and Project Z
should be
c. If the firm's overall cost of capital were used as a hurdle rate, Project W would be
Project X would be
and Project 2 would be
Project Y would be