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Suppose that, despite the higher cost of capital for risky projects (1.1 times divisional cost), the Plastic Products Division made relatively heavy investments in projects

Suppose that, despite the higher cost of capital for risky projects (1.1 times divisional cost), the Plastic Products Division made relatively heavy investments in projects deemed to be more risky than average. What effect would this have on the firm’s corporate beta and over- all cost of capital? How long would it take for the effects of these relatively risky investments to show up in the corporate beta as reported by brokers and investment advisory services?

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