An All-Equity Firm Is Considering the Projects Shown as Follows

question 94

Multiple Choice

An all-equity firm is considering the projects shown as follows. The T-bill rate is 4 percent and the market risk premium is 7 percent. If the firm uses its current WACC of 12 percent to evaluate these projects, which project(s) , if any, will be incorrectly accepted or rejected?
$$\begin{array} { c c } \text { Project } & \text { Expected Return } & \text { Beta } \\\mathrm { A } & 9.0 \% &0.6\\\mathrm {~B} & 20.0 \% &1.2\\\mathrm { C } & 13.0 \% &1.4\\\mathrm { D } & 17.0 \%&1.5\end{array}$$

• A) Project A would be incorrectly rejected.
• B) Both Projects A and C would be incorrectly rejected.
• C) Project A will be incorrectly rejected and Project C would be incorrectly accepted.
• D) None of the projects will be incorrectly accepted or rejected.

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Definitions:

Negative Content

Information or material that conveys adverse, pessimistic, or undesirable messages or sentiments.

Emphasizing

The act of giving particular importance or priority to a part of a message or piece of information.

De-emphasizing

A strategy used in communication to make certain information seem less important or prominent.

Preaching

The act of delivering a religious message or sermon, often based on scripture, to a group of people.