Consider an investment project which requires an initial outlay of 10 million dollars and is expected to generate a cash flow of 12 million dollars one year later. Suppose that the risk free rate is 8% and that the expected market rate of return is 16%.

(a) Compute the net present value of the project if the project beta is equal to 1.2.

(b) Find the range of all possible values of beta for which this project should be implemented.

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