PS3 - Problem Set#3 Business Finance(03075 03085 Please...

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Problem Set #3 Business Finance (03075 & 03085) Please note that you do not have to submit your answers. They will not be graded. But, similar questions will appear in the quiz. Answer keys will be uploaded at Blackboard soon. 1. ( WACC ) All all-equity firm is considering the following projects: Project Beta Expected Return W 0.60 11% X 0.90 13% Y 1.20 14% Z 1.70 16% The T-bill rate is 5 percent, and the expected return on the market is 12 percent [ Hint : expected return in the third column is not the expected return computed from SML] a. (1 point) Which projects have a higher expected return than the firm’s 12 percent cost of capital? b. (1 point) Which projects should be accepted? c. (1 point) Which projects would be incorrectly accepted or rejected if the firm’s overall cost of capital were used as a hurdle rate? 2. ( WACC ) Lizpaz Inc. is a levered firm with a debt-to-equity ratio of 0.25. The beta of the common stock is 1.15, while the beta of the debt is 0.3. The market-risk premium
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PS3 - Problem Set#3 Business Finance(03075 03085 Please...

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