Short Answer. Suppose two all equity-financed firms, Firm X and Firm Y, are considering the same new project that has a beta of 1. The project has an IRR of 9.2%. Firm X has a beta of 1.2 and Firm Y has a beta of 0.9. The risk-free rate is 3% and the expected market risk premium is 6%.

a.) Should Firm X accept the project? Clearly explain, being sure to justify your reasoning.

b.) Should Firm Y accept the project? Clearly explain, being sure to justify your reasoning.