Homework Answers
17) True
As per CAPM model,
Expected return on investment = Risk free rate + Beta of the investment x market risk premium
= 0.05 + 1.05 x 0.07
= 12.35%
18) False
Expected return for WS division is 8.5% so a project with IRR 10% will be acceptable
Expected return for SR division is 14.10% so a project with IRR 10% will not be acceptable
19) False
Expected return for WS division is 8.5% so a project with IRR 7.5% will not be acceptable
20) False
Expected return for SR division is 14.10% so a project with IRR 13.5% will not be acceptable
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