1. You are a consultant to a large manufacturing corporation that is considering a project with the following net after-tax cash flows (in millions of dollars):

Years from Now	After-Tax Cash Flow
0	90
110	17

The project's beta is 1.2. a. Assuming that r_f = 4% and E(r_M) = 11%, what is the net present value of the project? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

b. What is the highest possible beta estimate for the project before its NPV becomes negative? (Round your answer to 2 decimal places.)

2.

Consider the following table, which gives a security analysts expected return on two stocks in two particular scenarios for the rate of return on the market:

Market Return		Aggressive Stock		Defensive Stock
4	%	2	%	6	%
23		35		13

a. What are the betas of the two stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. What is the expected rate of return on each stock if the two scenarios for the market return are equally likely to be 4% or 23%? (Do not round intermediate calculations. Round your answers to 1 decimal place.)

e. What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firms stock if the two scenarios for the market return are equally likely? Also, assume a T-Bill rate of 6%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)