3) [7 Points] A firm has a beta of 1.2. The firms return on equity is 15%. The market risk premium is 8%. The firm's capital structure is 60% debt, and 40% equity. The weighted average cost of capital is 10%. The cost of the firm's debt is equal to the risk-free rate + 2%. Answer the following questions: 1 a) [1 Point] Calculate the implied risk-free rate of return. b) [3 Points] Calculate the corporate tax rate. c) [3 Points] i. [2 Points] For a large conglomerate firm with many diverse lines of business, explain why it may not be correct to use the average cost of capital for all investment projects when discounting cash flows. ii. [1 Pointl) If a firm were to use the average cost of capital for all investment projects, state the systematic investment decision error that the firm would likely make for each of Good low-risk projects (such as systems upgrades and enhancements) Poor high-risk projects (such as new lines of business and speculative ventures) 3) [7 Points] A firm has a beta of 1.2. The firms return on equity is 15%. The market risk premium is 8%. The firm's capital structure is 60% debt, and 40% equity. The weighted average cost of capital is 10%. The cost of the firm's debt is equal to the risk-free rate + 2%. Answer the following questions: 1 a) [1 Point] Calculate the implied risk-free rate of return. b) [3 Points] Calculate the corporate tax rate. c) [3 Points] i. [2 Points] For a large conglomerate firm with many diverse lines of business, explain why it may not be correct to use the average cost of capital for all investment projects when discounting cash flows. ii. [1 Pointl) If a firm were to use the average cost of capital for all investment projects, state the systematic investment decision error that the firm would likely make for each of Good low-risk projects (such as systems upgrades and enhancements) Poor high-risk projects (such as new lines of business and speculative ventures)