The CFO of RBS is condering undertaking a new project. The expected return on the project is 11% the estimated beta of the company is 0.8 and the project has a standard deviation of 15% . The historical risk premium has been estimated to be 3%. Currently risk-free rate is 2%.

Assume that the investors in the company have diversified portfolio holdings and that th CAPM holds.

i.) should beta or the standard deviation of retuns be applied to determine the expected retun that shareholders would require for the project to be undertaken? Explain and justify your answer.

ii.) would this project be attractive to existing shareholders? Explain and justify your answer.