You are a Spanish conquistador thinking about buying a ship and traveling to India to purchase spices. If you sail, there is a 60% chance the ship will sink before coming back. The probability it sinks only depends on weather conditions, and is thus uncorrelated with the market. If the ship does not sink, you can sell the spices when you come back in one more year. Spice prices are related to market events and have a beta of 2. If you make it back you can sell the spices for an expected price of $30,000 and the ship for a known price of $10,000 (certain). Should you set sail if the risk-free rate is 5% and the expected return on the market is 15%? Assume CAPM assumptions are satisfied. (Hint: there are two distinct projects in this venture. The ship project and the spice project.) (a) (b) (c) (d) LUISS What is the beta of the ship project? What is its expected return? What is the present value of the ship? What is the present value of the spice project? What is the overall NPV of the venture (ship plus spice)? Is it positive? To answer this question, assume that spices cost $1,000 and the ship costs $10,000.