An all-equity financed firm that has an 11 percent cost of capital is considering the...
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An all-equity financed firm that has an 11 percent cost of capital is considering the following projects:
Project Beta Expected Return
W .75 11%
X .95 13%
Y 1.15 14%
Z 1.50 15%
The T-bill rate is 5 percent and the expected return on the market is 12 percent. Assuming the CAPM is the true return generating model, which projects should be accepted and which projects should be rejected?
| B. Accept W, Y and Z; Reject X |
| D. Accept W, X and Y; Reject Z |
| C. Accept W, X and Z; Reject Y |
| A. Accept X, Y and Z; Reject W |
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