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2. The current risk free rate is 4% and the expected risk premium on the market portfolio is 7%. You work for a software company

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2. The current risk free rate is 4% and the expected risk premium on the market portfolio is 7%. You work for a software company and have been asked to estimate the appropriate discount rate for a proposed investment project. Your company's stock has a beta of 1.3. The project is a proposal to begin cigarette production. RJR Reynolds has a beta of 0.22. What is the appropriate discount rate and why? JEE

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