1. Assume that risk-free interest rate is 3% and that equity risk premium is 4%. A company worth NOK 800 million has a beta related to CAPM of 3. There is a proposal for a project that costs NOK 80 million. The project is expected to pay out NOK 88 million next year. The beta for this new project is estimated at 0.5.

a. If a company does everything 100% right, what will be the present value of the project? Should the company accept the project?

b. However, the company uses average capital cost (WACC) to calculate present value. Will the company accept the project now?