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On-line Text Co. has four new text publishing products that it is considering. The projects are of equal risk with a beta of
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Answer #1

According to the CAPM,

Required Return = Risk-free Rate + [Beta * (Expected Market Return - Risk-free Rate)]

= 4.2% + [1.6 * (12.3% - 4.2%)]

= 4.2% + [1.6 * 8.1%] = 4.2% + 12.96% = 17.16%

Only Projects with higher IRR than the required return should be accepted. Hence, only Projects W and Y would be selected.

So, Option "D" is correct.

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