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2. Suppose that the firm's current beta was estimated at 1.10. Treasury bills were yielding 4%, and the expected rate of return on the market

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2. Suppose that the firm's current beta was estimated at 1.10. Treasury bills were yielding 4%, and the expected rate of return on the market index was estimated to be 12%. Assume that the NPV of the project if it were funded entirely by equity is $2 million. i. What is the current value of the firm (before taking up the project) according to the information provided in the case? (Hint: Note that the market value of the firm's stock is given in the case.) ii. Now suppose the project is accepted. Use the Modigliani-Miller theory with taxes to estimate the value of the firm, the firm's cost of equity and the firm's WACC under both options, namely, funding the project using equity and funding the project using debt

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