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You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are
You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows:
Years | Cash Flow |
---|---|
0 | 100 |
1 to 10 | +17 |
On the basis of the behavior of the firms stock, you believe that the beta of the firm is 1.32. Assume that the rate of return available on risk-free investments is 3% and that the expected rate of return on the market portfolio is 16%. Should you accept or reject the project?
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