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The T-bill rate is 4 percent and the expected return on the market is 12 percent. a....

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Finance

The T-bill rate is 4 percent and the expected return on themarket is 12 percent.

a. What projects have a higher expected return than the firm’s12.5 percent cost of capital?

b. Which projects should be accepted?

Project

Beta

IRR

W

0.80

10.2%

X

0.90

11.4%

Y

1.10

12.6%

Z

1.35

15.1%

Answer & Explanation Solved by verified expert
3.9 Ratings (551 Votes)
Expected returnRisk free rate BetaMarket ReturnRisk free rate In the question Tbill refers to the risk free rate that is 4 and market return is 12 Part a    See Answer
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Transcribed Image Text

The T-bill rate is 4 percent and the expected return on themarket is 12 percent.a. What projects have a higher expected return than the firm’s12.5 percent cost of capital?b. Which projects should be accepted?ProjectBetaIRRW0.8010.2%X0.9011.4%Y1.1012.6%Z1.3515.1%

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