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On-line Text Co. has four new text publishing products that it is considering. The projects are...

On-line Text Co. has four new text publishing products that it is considering. The projects are of equal risk with a beta of 1.6. The risk-free rate is 4.2 percent and the market rate of returnis expected to be 12.3 percent. The projects and their expected internal rates of return are: W = 18.42 percent; X = 17 percent, Y = 19.32 percent; and Z = 16.2 percent. Which projects should be accepted?

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Answer #1

required rate of return

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

=17.16%

projects W as well as Y should be accepted as expected returns are higher as compared to required rate of return

the above is answer..

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