Frank & Sons, a 100% equity financed firm, has a beta equal to 1.3. The firms stock is currently trading at $25 per share, and pays a $1.50 per share dividend. Treasury securities are trading at prices that result in a 7% yield, while current projections claim a 15% return from the stock market.

1) What is Frank & Sons required rate of return on average risk projects?

Question options: a) 16.8% b) 17.4 c) 18.1% d) 18.7%

2) If Frank & Sons has identified an investment that has a beta of 0.96 what rate of return should it require on the project?

Question options: a)14.2% , b) 14.7% , c) 15.5% d) 16.0%

3) If Frank & Sons has identified an investment that has a beta of 0.96, and they evaluate the project using the firms cost of capital, what would happen? Assume an initial outlay of $10,000 and expected cash inflows of $3,600 for years 1-4.

Question options:

a) The firm would reject the project when they should accept it

b) The firm would accept the project when they should reject it

c) The firm will correctly accept the project

d) The firm will correctly reject the project