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The investment project has a beta of 1.2. The initial investment is 1,000, and the project will generate annual cash flows of 400. The projects

The investment project has a beta of 1.2. The initial investment is 1,000, and the project will generate annual cash flows of 400. The projects life is 3 years. Assume the risk-free interest rate is 8% and the expected market return is 13%.

1. Using the SML, estimate the discount rate for the project.

2. Find the projects NPV. Should the firm invest in it?

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