an acceptable rate of return for the firm

Interpreting Financial Results
November 7, 2019
The rise and fall of Eastman Kodak
November 7, 2019

an acceptable rate of return for the firm

XYZ Industries has three projects under consideration. Project L is a lower-than-average-risk project, project A is an average-risk project, and project H is a higher-than-average-risk project. You have gathered the following information to determine if one or more of these projects has an acceptable rate of return for the firm.
• Sources of financing 50% debt and 50% equity
• Rd = 7.00% before taxes
• Tax Rate = 30%
• Average beta for XYZ Industries = 1.5
• Rm = 12.00%
• Rf = 3.75%
• Adjusted WACC = 10%
• Beta for project L = 0.80, for project A = 1.00, and for project H = 1.20
• IRRL = 9.00%, IRRA = 10.00%, and IRRH = 11.00%

Calculate the required rate of return for each project and determine which, if any, projects are acceptable to the firm.

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