Question: Intelly Inc. is a company that develops artificial intelligence tools for business. It has a market leverage ratio of 0.23 and its stock has a

Intelly Inc. is a company that develops artificial intelligence tools for business. It has a market leverage ratio of 0.23 and its stock has a beta of 1.4. Intelly's debt has no exposure to systematic risk. Suppose that the risk-free rate is 3% and the market premium is 5%.

According to the CAPM, what return should investors require to bear the risk of holding Intelly's stock?

Suppose that you run a hedge fund and project that Intelly's stock will have a return of 8%. Is Intelly's stock currently under-priced, over-priced, or correctly priced? Explain.

Suppose Intelly is considering an investment in the next generation of it AI technology. What opportunity cost of capital should Intelly use to discount the cash flows from the project?

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