Senior management is confused about $***$ the rates to discount the potential projects at$.$ The chief executive believes both projects should be evaluated at the companys current cost of capital. The finance director disagrees. He thinks that S$-$Type $1$ poses a higher risk to the company because $***$ it deviates from the current activities of the company. He therefore believes this project should be evaluated at $16\%.$ The risk$-$free rate of interest and expected $***$ return on the market portfolio are $2\%$ and $12\%,$ respectively.