Question: Company X has two mutually exclusive projects. Project 1 has an IRR of 5% and a beta equal to 1/2. Project 2 has an IRR

Company X has two mutually exclusive projects. Project 1 has an IRR of 5% and a beta equal to 1/2. Project 2 has an IRR of 20% and a beta equal to 2. Assume that the risk free rate is zero, the market risk premium is 10%, the projects are 100% equity financed and the CAPM holds. Then,

Project 1 is better than project 2

Project 2 is better than project 1

The company should be indifferent between the two projects

If the companys beta is less than 2, then project 2 is preferable

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