Accepting and rejected projects on their expected retur

[KarlMencer1a]

Project W: Beta = 0,80; Expected return = 0,06
Project X: Beta = 0,70; Expected return = 0,05
Project Y: Beta = 1,15; Expected return = 0,09
Project Z: Beta = 1,70; Expected return = 0,13

T-bill rate = 3%. Expected return on market = 0,75%.

E(Ri) = Ri + B + (E(Rm) - Rf)
E(W) = 0,03 + 0,80 x (0,075 - 0,03) = 0,066 > 0,06 = (reject project W)
E(X) = 0,06 > 0,05 (reject X)
E(Y) = 0,08 < 0,09 (accept Y)
E(Z) = 0,11 < 0,13 (accept Z)

Which projects would be incorrectly accepted or rejected if the firm's overall cost of capital were used as a hurdle rate?

I am not sure I understand the question. How do I find the overall cost of capital? One of the sub-questions mentioned 12% cost of capital. Doe sit have anything to do with this question? Any help much appreciated!!

 

[Ishuda]

Project W: Beta = 0,80; Expected return = 0,06
Project X: Beta = 0,70; Expected return = 0,05
Project Y: Beta = 1,15; Expected return = 0,09
Project Z: Beta = 1,70; Expected return = 0,13

T-bill rate = 3%. Expected return on market = 0,75%.

E(Ri) = Ri + B + (E(Rm) - Rf)
E(W) = 0,03 + 0,80 x (0,075 - 0,03) = 0,066 > 0,06 = (reject project W)
E(X) = 0,06 > 0,05 (reject X)
E(Y) = 0,08 < 0,09 (accept Y)
E(Z) = 0,11 < 0,13 (accept Z)

Which projects would be incorrectly accepted or rejected if the firm's overall cost of capital were used as a hurdle rate?

I am not sure I understand the question. How do I find the overall cost of capital? One of the sub-questions mentioned 12% cost of capital. Doe sit have anything to do with this question? Any help much appreciated!!

Do you know what these equations (and terms) mean? Please show us your work (even if you think it is wrong) so we can see where you need help. You might also want to read the 'read before posting'
http://www.freemathhelp.com/forum/announcement.php?f=40

 

[KarlMencer1a]

Do you know what these equations (and terms) mean? Please show us your work (even if you think it is wrong) so we can see where you need help. You might also want to read the 'read before posting'
http://www.freemathhelp.com/forum/announcement.php?f=40

Thank you for your question. I have put down the equation from the chapter and did all the calculations right. They are already presented in my original post. they answer the question:

Which projects should be accepted?

The formula I used includes the following variables:

E(Ri) = Rf + B + (E(Rm) - Rf)

where E(Ri) is expected return, Rf is a risk-free rate, B is beat (systematic risk), Rm is market return, and E(Rm) - Rf is market risk premium.

But, I still stumble on the second question, which is:

Which projects would be incorrectly accepted or rejected if the firm's overall cost of capital were used as a hurdle rate?

Here I need help. Please, let me know if you have any questions.