Company Risk versus Project Risk Both AstraZeneca plc, a large pharmaceutical firm, and Takeda plc, a major prescription medicine manufacturer, are thinking of investing in an Indian generic drugs company.

Assume that both AstraZeneca and Takeda have no debt and both firms are considering identical projects.

They have analysed their respective investments, which would involve a negative cash flow now and positive expected cash flows in the future. These cash flows would be the same for both firms. No debt would be used to finance the projects. Both companies estimate that their projects would have a net present value of

£10 million at a 12 per cent discount rate and a −£12 million NPV at a 15 per cent discount rate. AstraZeneca has a beta of 1.25, whereas Takeda has a beta of 0.75. The expected risk premium on the market is 8 per cent, and risk-free bonds are yielding 3 per cent. Should either company proceed? Should both? Explain.