Zed chem is a pharmaceutical company in Zambia. The company's research department has identified a compound that can cure a common cold without any side effects. unfortunately, the manufacturer of this compound requires the company to invest heavily in a high-technology factory that will use a number of new techniques, some of which are unproven. The company will also need to recruit and retain the services of a number of eminent scientist. Each of these is vital to the project and would be replaceable. Financing this project will require the company to borrow heavily. The company is unlikely to survive as an independent entity if it invests in this project and it fails. The directors have been advised that there is at least a 50% chance of a catastrophic failure. The project has a beta of 0.5 . The risk-free rate is 3% and the equity risk premium is 8% . The project offers an estimated return of 24%.
required:
i) calculate the required rate of return for the project.
ii) Explain how investing in the project would affect the wealth of Zedchem Plc's shareholders.

Answer rating: 100% (QA)

Answer II as this project is expects to provide the estimated ret... View the full answer