You have forecast the cash flows on a project with a beta of 1.3 and calculated that its internal rate of return is 12 percent. Suppose that Treasury bills offer a return of 4 percent and the expected market risk premium is 7 percent. Which of the following statements is correct?

Multiple Choice

• Reject the project because its return lies below the security market line

• There is not enough information to know whether to accept or reject the project

• Accept the project because its return lies above the security market line

• Reject the project because its return lies above the security market line

• Accept the project because its return lies below the security market line

Which of the following offerings is likely to have the largest issuing costs as a percentage of gross proceeds?

Multiple Choice

• A $100 million debt issue

• A $50 million private placement of debt

• A $100 million stock issue

• A $5 million stock issue

• A $5 million debt issue