Suppose That Two Firms, a and B, Are Considering the Same

question 230

Multiple Choice

Suppose that two firms, A and B, are considering the same project which has the same risk as firm B's overall operations. The project has an IRR of 14.0%. Firm A has a beta of 1.4, while firm B's beta is 1.1. If the risk-free rate is 5.25% and the market risk premium is 7.0%, which firm(s) should take the project?

• A) A only
• B) B only
• C) Both A and B
• D) Neither A nor B
• E) Cannot be determined without additional information.

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