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Eyes of the World Corporation have traditionally employed a firm wide discount rate for capital budgeting purposes. However, its two divisions: Publishing and Entertainment have
Eyes of the World Corporation have traditionally employed a firm wide discount rate for capital budgeting purposes. However, its two divisions: Publishing and Entertainment have different degrees of risk and the beta for the overall firm is 1.3. The firm is considering the following capital expenditures: Publishing Proposed project Initial investment (RM) Return (%) P1 1,000,000 13.0 P2 3,000,000 12.1 P3 2,000,000 9.0 E1 4,000,000 16.0 6,000,000 17.0 Entertainment E2 Based on the information above: a) Calculate expected return on portfolio. (4 marks)
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