A firm has a WACC of $12\%$ and a beta of $1.$ Project ABC has an expected

return of $14\%,$ but it is twice as risky as the firm's usual projects

$($beta of $2).$ What should the firm do$?$ Assume the risk$-$free rate is $2\%$ and the market risk premium is $10\%.$

$(3$ Points$)$

Reject the project. Although the expected return$>12\%,$ the project's expected return does not offset the higher project risk.

Accept the project since the expected return $>12\%$ required by the firm.