Please answer the following questions and show work. (Stocks, Cost of Capita & Capital Budgeting)

6. Dick Boe Enterprises, an all-equity firm, has a corporate beta coefficient of 1.5. The financial manager is evaluating a project with an expected return of 21 percent, before any risk adjustment. The risk-free rate is 10 percent, and the required rate of return on the market is 16 percent. The project being evaluated is riskier than Boes average project, in terms of both beta risk and total risk. Which of the following statements is most correct?

a. The project should be accepted since its expected return (before risk adjustment) is greater than its required return.

b. The project should be rejected since its expected return (before risk adjustment) is less than its required return.

c. The accept/reject decision depends on the risk-adjustment policy of the firm. If the firms policy were to reduce a riskier-than-average projects expected return by 1 percentage point, then the project should be accepted.

d. Riskier-than-average projects should have their expected returns increased to reflect their added riskiness. Clearly, this would make the project acceptable regardless of the amount of the adjustment.