Transcribed Image Text
An all-equity firm is considering the projects shown below. TheT-bill rate is 4% and the expected market return is 14%. Using theCAPM, calculate the risk adjusted required return for each project.If the firm uses its current WACC of 12 percent to evaluate theseprojects, which project(s), if any, will be incorrectly rejected?Which project(s), if any, will be incorrectly accepted?Project Expected Return Project BetaA 10.0% 0.5B 19.0% 1.2C 13.0% 1.4D 20.0% 2.5CAPM: E(Ri) = RF + [Bi X (E(Rm) – Rf)]Where; E(Ri) = expected return for project i.RF = risk-free rate (T-bill rate)Bi = Beta for project i.E(Rm) = expected return for the market
Other questions asked by students
Statistics
General Management
Q
Which of the following statement is incorrect Moment of inertia is independent of distribution of...
Physics
Accounting
Accounting
Accounting