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Suppose IBM is considering whether to undertake a project that has similar risk characteristics to the overall firm. The equity beta of IBM is 1.32,
Suppose IBM is considering whether to undertake a project that has similar risk characteristics to the overall firm. The equity beta of IBM is 1.32, the risk free rate is 10%, and the return on market portfolio is 25%. Suppose too that the companys total assets are $100 million, with debt at $40 million and value of its stock $60 million. Its debt is known to be risk free. Assume no taxes. The rate of return the company will choose to evaluate the project is 1. 29.8%. 2. 21.88%. 3. 19.28%. 4. 16%. 5. 24.22%.
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