4. In evaluating the situation presented in the previous problem, you’ve found a pure play company in the proposed industry whose beta is 2.5. The rate of return on short-term treasury bills is currently 8% and a typical stock investment returns 14%. Explain how this information might affect the acceptability of Charlie’s proposal.

What practical concerns would you overlay on top of the theory you’ve just described? Do they make the project more or less acceptable? Does the fact that Bartok has never done this kind of business before matter? How would you adjust for that inexperience? Is the risk of bankruptcy still important? What would you advise doing about that? All things considered, would you advise the president to take on the project or not?