Wilson's Is Reviewing a Project with an Internal Rate of Return

question 15

Multiple Choice

Wilson's is reviewing a project with an internal rate of return of 13.09 percent and a beta of 1.42.The market risk premium is 8.1 percent,the tax rate is 35 percent,and the risk-free rate is 2.9 percent.The firm's WACC is 12.68 percent.Will the project be accepted if the WACC is used as the discount rate for the project? Should the project be accepted according to the CAPM,and why or why not?

• A)Yes;No;The CAPM return of 14.40 percent exceeds the IRR of 13.09 percent.
• B)Yes;Yes;The project plots above the security market line.
• C)Yes;Yes;The CAPM of 10.28 percent is less than the IRR of 13.09 percent.
• D)No;Yes;The project plots above the security market line.
• E)No;No;The project plots below the security market line.

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Definitions:

Stock

Shares of ownership in a company, representing a claim on the company's assets and earnings.

Primary Inventory Management

Refers to the basic approaches and strategies businesses use to control their goods, materials, and products to ensure availability while minimizing costs.

Distribution Center

A specialized building designed for storing and sorting products to facilitate their distribution to retailers, wholesalers, or directly to consumers.

Best-seller

A product or book that has achieved significant sales figures compared to others in its category.