Krile Industries Has Three Projects Under Consideration

question 71

Essay

Krile Industries has three projects under consideration. Project L is a lower-than-average-risk project, project A is an average-risk project, and project H is a higher-than-average-risk project. You have gathered the following information to determine if one or more of these projects has an acceptable rate of return for the firm.
• Sources of financing 50% debt and 50% equity
• R_d = 8.00% before taxes
• Tax Rate = 30%
• Average beta for Krile Industries = 1.0
• R_m = 13.00%
• R_f = 4.00%
• Adjusted WACC = 9.30%
• Beta for project L = 0.80, for project A = 1.00, and for project H = 1.20
• IRR_L = 9.00%, IRR_A = 10.00%, and IRR_H = 11.00%
Calculate the required rate of return for each project and determine which, if any, projects are acceptable to the firm.

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