Question: Company X has two mutually exclusive projects. Project1 has an IRR of 5% and a beta equal to1/2. Project 2 has an IRR of 20%

Company X has two mutually exclusive projects. Project1 has an IRR of 5% and a beta equal to1/2. 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,

A.Project 1 is better than project 2

B.Project 2 is better than project1

C.The company should be indifferent between the two projects

D.If the companys beta is less than 2,, then project2 is preferable

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