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Polycorp Is Investigating Two Projects The Risk Free Rate Is 06 And The Market Premium Is 0 06 Project

Question

Polycorp is investigating two projects. The risk free rate is .06 and the market premium is 0.06. Project

A has a beta of .75 and Project B has a beta 1.6 times that of the average for the firm’s existing projects. Projects A and B are independent. If accepted the projects will initially be funded by borrowing at 7%pa. Calculate the beta of project B to two decimal places. The firm’s current weighted average cost of capital is 11% pa (before taking either or both A and B). Assume no taxes.

Finance