Icicle Works plc is a frozen food packaging company that intends to diversify into electronics.

The project has a return of 12 per cent and Icicle Works is trying to decide whether it should be accepted. To help it decide it is going to use the CAPM to find a proxy beta for the project and has the following information on three electronics companies:

(a) Supertronic plc This company has an equity beta of 1.33 and is financed by 50 per cent debt and 50 per cent equity.

(b) Electroland plc This company has an equity beta of 1.30, but it has just bought a non-electronics company with an asset beta of 1.4 that accounts for 20 per cent of the company’s value. The company is financed by 40 per cent debt and 60 per cent equity.

(c) Transelectro plc This company has an equity beta of 1.05 and is financed by 35 per cent debt and 65 per cent equity.

Assume that all debt is risk free and that corporate tax is at a rate of 30 per cent.

Icicle Works plc is financed by 30 per cent debt and 70 per cent equity. The risk-free rate of return is 5 per cent and the return on the market is 9 per cent. Should the company accept the project?