Use the following information to answer the next four questions.) Firms 1 7 operate in the industries shown. All seven firms are considering projects in the industries shown, to be financed using the same mix of debt and equity (B/V and S/V, respectively) as finances existing projects. The firms stock betas are shown.

Corporation:	Firm 1	Firm 2	Firm 3	Firm 4	Firm 5	Firm 6	Firm 7
Current Business:	Industries 1 & 2	Industries 3 & 4	Industry 1	Industry 2	Industry 3	Industry 4	Industry 4
B/V S/V	0.0000 1.0000	0.2000 0.8000	0.0000 1.0000	0.0000 1.0000	0.1000 0.9000	0.3000 0.7000	0.0000 1.0000
S	0.9000	1.2420	0.6000	1.1000	0.8533	1.8857	1.5000
Project:	Industry 1	Industry 3	Industry 1	Industry 1	Industry 3	Industry 2	Industry 2
Notes:	T = 0.40 and RB = 0.03 for all firms. The risk-free return is 1% per year. The market risk premium is 7% per year.

18. Which of the following statements is most accurate?

a. Firm 1s stock beta lies between the asset betas of Firms 3 and 4.

b. Firm 1s cost of equity (R_S) is the correct discount rate for its project.

c. Firm 1s cost of equity for the project is 0.064 or 6.4%.

19. Which of the following statements is most accurate?

a. Firm 2s weighted average cost of capital (WACC) is the correct discount rate for this project.

b. Firm 2 may rightly use Firm 5 as a proxy firm to find a discount rate for its project.

c. Firm 2 may rightly use Firm 5s WACC as the discount rate for this project.

20. Which of the following statements is inaccurate?

a. Firms 3 and 4 may rightly use the same discount rate for their projects.

b. The discount rate for Firm 5s project is 0.065 or 6.5%.

c. The rate of return Firm 5 stockholders require on existing projects is 0.061 or 6.1%.

21. Which of the following statements is most accurate?

a. Existing projects at Firms 6 and 7 have the same asset beta.

b. Stockholders at Firm 6 require a lower rate of return on the firms existing projects than stockholders at Firm 7 require on their firms existing projects.

c. Firms 6 and 7 are both pure-play firms undertaking expansion / replacement projects.