Intel is exploring a joint venture with Ford to develop computer chips to use in automobiles. Although Intel has traditionally used a cost of equity based on its beta of 1.50 and a cost of capital based on its debt ratio of 5%, it is examining whether it should use a different approach for this project. It has collected the following information:

-The average beta for automobile component firms is 0.90, and the average debt/equity ratio across these firms is 40%

-The joint venture will be financed 70% with equity from Ford and Intel, and 30% with new debt raised at a market interest rate of 7.5%

a. Estimate the beta that Intel should use for this project.

b. Estimate the cost of capital that Intel should use for this project.

c. What would be the consequences of Intel using its current cost of equity and capital on this project?