. Ruby Motors (RMT) is an all-equity financed company and its equitys required rate of return is estimated to be 10%. The risk free rate is 2% and the market portfolio has an estimated rate of return of 10%. Ruby Motors is assessing the merits of two mutually exclusive projects. Project A has a beta of 1.8 and project B has a beta of 1.0. If Ruby Motors uses its overall cost of capital to assess the merits of both projects, what statement is least correct?

(a) RMT will underestimate project As risk (b) RMT will overestimate project As NPV (c) RMT will underestimate project Bs NPV (d) RMT will destroy firm value (e) RMT will accept risky projects