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

question 32

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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Definitions:

Monkey

A primate belonging to the simian infraorder, characterized by its tail and, in many species, its ability to climb trees.

Phobias

Severe, unreasonable fear directed towards particular objects, activities, or situations resulting in evasion actions.

Panic Disorder

A psychiatric disorder characterized by sudden, repeated attacks of intense fear and discomfort that reaches a peak within minutes.

Fear of Snakes

An intense, irrational fear of snakes, also known as ophidiophobia, which can cause significant anxiety and avoidance behavior.