Setup: Baker Corp. has several new projects that look attractive, but some are riskier than the firm's past projects. Baker has received a major inflow of cash from a venture capital firm, in exchange for 25% of the firm's closely held stock. The VC firm has asked Baker managers to "run the numbers" to examine both the market outlook and the expected returns on each of the projects they are considering. The cash infusion will not cover all the proposed projects; Baker and its new investors need to know which projects should be approved.

1. Historically, Baker projects have had an average beta of 1.2, which indicates the higher risk levels for the firm. Assuming the market risk premium (MRP) currently estimated to be 7.0% and the risk-free rate is 5.15%, what is the required return for an "average" Baker project using based on its average project beta? Show the average required return to 2 decimal places (x.xx%).

2. The potential projects that Baker is considering have the following expected cash flows. Each project has its own unique risk and as such, the beta on each project is given. Using the data from #2 for the risk-free rate and market risk premium, what is the required percentage return for each of the projects? Show the required returns to 2 decimals, that is xx.xx%. You will use these rates when analyzing each project in the next part of the assignment, these are the required rates of return for Problems 4-6). (8 pts)

#2	Project A	Project B	Project C	Project D
Beta	0.9	1.4	1.1	1.3
Req. return (show work)