A manager gathers the following data for a company with 40 percent debt and 60 percent equity in its capital structure:

Required return on debt	7 percent
Required return on firm's equity	10 percent
Risk-free rate of return	4 percent
Market equity risk premium	6 percent
Company beta	1.15
Project X beta	1.50
Project Y beta	0.80

If the firm applies its overall weighted average cost of capital (WACC) to discount each new project's cash flows, the most likely effect on each project's NPV is that:

Question 18 options:

	Project X is overvalued and project Y is overvalued.
	Project X is undervalued and project Y is overvalued.
	Project X is overvalued and project Y is undervalued.