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

question 70

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 8 percent. If the firm uses its current WACC of 13 percent to evaluate these projects, which project(s) will be incorrectly accepted? $$\begin{array} { | c | c | c | } \hline \text { Project } & \text { Expected Return } & \text { Beta } \\\hline \mathrm { A } & 9.0 \% & 0.7 \\\hline \mathrm { B } & 20.0 \% & 1.1 \\\hline \mathrm { C } & 15.0 \% & 1.5 \\\hline \mathrm { D } & 18.0 \% & 1.9 \\\hline\end{array}$$

• A)Project A
• B)Project C
• C)Project D
• D)Projects C and D

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Definitions:

Occult

Pertains to supernatural, mystical, or magical beliefs, practices, or phenomena that are beyond the range of normal scientific understanding.

Supernatural

Phenomena, entities, or forces beyond the natural world and not explained by current scientific understanding.

Collective Unconscious

A concept in Jungian psychology referring to the part of the unconscious mind that is shared among beings of the same species containing universal experiences.

Archetypes

Universal, symbolic images or themes that derive from the collective unconscious, as proposed by Jung, that appear across cultures and times.