Question $5$:

Consider the following data:

At the end of Q$42024($December $2024)$

Expected Risk Free Rate for $20254\mathrm{.}20\%$

Expected market rate of return $9\mathrm{.}25\%$

Company projects

Project A Project B Project C Project D Project E

Beta $3\mathrm{.}174\mathrm{.}755\mathrm{.}952\mathrm{.}031\mathrm{.}83$

Project Managers' Projected$/$Forecast $2025$ returns, $\%8\mathrm{.}00\%11\mathrm{.}90\%12\mathrm{.}70\%7\mathrm{.}80\%???$

Part A:

You are project manager for Project E

You have $1$ hour left before presenting to the senior management team on your own projections for your project.

Objectively $($aka$,$ empirically$-$justifiably$)$ what should be your forecast for your project return for $2025?$

Part B:

Suppose after all managers reported their forecasts, your company CFO informs the entire team that she now expects the risk free rate to fall to $4\mathrm{.}05\%$ in $2025.$

She further expects that market risk premium is expected to be $1\mathrm{.}75\%,$ while your company market risk premium is $2\mathrm{.}75\%.$

Given the forecasts produced by you and other project managers are as stated in part $($a$),$ which project$($s$)$ manager$($s$)$ are in trouble?

Show all work and explain all answers.