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Consider an economy with three states which occur with probability (0.2, 0.4, 0.4). Suppose a firm has a project which generates the state dependent cash flows (100, 200, 200) at t=1.
The investment costs are 170 at t=0. The firm owns this money. The market portfolio generates the payoff (200, 250, 300) and has an expected return of 8%. The risk free rate is 3%. Suppose the CAPM holds.
(a) What is the beta of this project?
(b) Explain whether the firm should conduct the project.
The discount rate used must normally reflect the weighted average cost of equity and debt taking into account the systematic risk of the investment. A company's weighted average co
PROPERTY IN BANKRUPT'S REPUTED OWNERSHIP The trustee may claim property owned by third parties which is in the bankrupt's possession at the commencement of the bankruptcy if:
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