An All-Equity Firm Is Considering the Projects Shown Below

question 81

Multiple Choice

An all-equity firm is considering the projects shown below. The T-bill rate is 3% and the market risk premium is 6%. If the firm uses its current WACC of 12% to evaluate these projects, which project(s) , if any, will be incorrectly rejected?

• A) Only Project A would be incorrectly rejected.
• B) Both Projects A and C would be incorrectly rejected.
• C) Projects A, B and C would be incorrectly rejected.
• D) None of the projects would be incorrectly rejecteD.Step 1: Find Project Required Returns using CAPM. Project A: 7.8%; Project B: 10.2%; Project C: 11.4%; Project D: 12%; only Project A would be incorrectly rejected since its required return is only 7.8% given its risk and it is expected to return 9%.

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Definitions:

Conscious Awareness

The condition of being conscious of one's own being, feelings, ideas, and environment.

Painful Memories

Recollections from the past that cause emotional distress and discomfort when remembered or recalled.

Paranoia

A mental condition characterized by irrational suspicions and mistrust of others, often without sufficient basis.

Thalamus

A small structure within the brain that serves as a relay station for information between the cerebral cortex and the rest of the nervous system.