Nero Violins has the following capital structure:

Security	Beta	Total Market Value ($ millions)
Debt	0		$	118
Preferred stock	0.38			58
Common stock	1.38			317

a.	What is the firm's asset beta? (Hint: What is the beta of a portfolio of all the firm's securities?) (Do not round intermediate calculations. Round your answer to 3 decimal places.)

b.

Assume that the CAPM is correct. What discount rate should Nero set for investments that expand the scale of its operations without changing its asset beta? Assume a risk-free interest rate of 7% and a market risk premium of 8%. (Do not round intermediate calculations. Round your answer to 3 decimal places.)