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 is expected to be 12.3 percent. The projects and their expected internal rates of return are: W = 14.4 percent; X = 18 percent, Y = 16.4 percent; and Z = 17.2 percent. Which projects should be accepted? Justify your acceptance decision.
Required rate of return = Rf + beta * (Rm-Rf)
=4.2%+1.6*(12.3%-4.2%)
=17.16%
Projects X as well as Z should be accepted as expected returns are higher as compared to required rate of return.
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?
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? A.Y and Z. B.X and Y. I C.W and...
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