Question
Now, suppose that two companies are looking at the same project. Company A has a beta of 1.5 and a cost of capital of 25%.
Now, suppose that two companies are looking at the same project. Company "A" has a beta of 1.5 and a cost of capital of 25%. Company "B" has a beta of 0.8 and a cost of capital of 15%. When evaluated at a rate of 15%, the project shows an NPV of +$5 million, and when evaluated at a rate of 25%, the project shows an NPV of -$2 million. Should either company accept the project, and if so, under what conditions?
Please explain your reasoning of how you came to the conclusion that you did.
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Introduction to Corporate Finance What Companies Do
Authors: John Graham, Scott Smart
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9781111532611, 1111222282, 1111532613, 978-1111222284
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