An all-equity firm is considering the following projects:
Project Beta Internal Rate of Return
W .75 8.9%
X .90 10.8%
Y 1.15 12.8%
Z 1.45 13.9%
The T-bill rate is 4%, and the expected return on the market portfolio is 11%. a. Which projects have the higher expected return than the firm’s 11% cost of capital? b. Which projects should be accepted? c. Which projects would be incorrectly accepted or rejected if the firm’s overall cost of capital (11%) were used as a hurdle rate?