Consider an economy with three states which occur with probability (0.2, 0.2, 0.6). Suppose a firm has a project which generates the state dependent cash flows (100, 240, 220) at t=1. The investment costs are 150 at t=0. The firm has 150 at t=0. The market portfolio generates the payoff (200, 230, 260) and has an expected return of 12%. The risk free rate is 4%. Suppose the CAPM holds. (a) What is the beta of this project? [4p] (b) What is the net present value of the project? Explain whether the firm should conduct the project. [2p]