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Logic Legal Leverage (LLL) is evaluating a project that has a beta coefficient equal to 1.3....

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Finance

Logic Legal Leverage (LLL) is evaluating a project that has abeta coefficient equal to 1.3. The risk- free rate is 3 percent andthe market risk pre- mium is 6 percent. The project, which requiresan investment of $405,000, will generate $165,000 after-taxoperating cash flows for the next three years. Should LLL purchasethe project? Excuse me, but I am stumped on this and the answerlisted feels incorrect to me. Any thoughts?

Answer & Explanation Solved by verified expert
3.6 Ratings (460 Votes)
Step1 Calculation of the Required rate of return As per Capital Asset Pricing Model CAPM the Required Rate of Return is calculated by using the following equation Required Rate of Return Riskfree Rate Beta x Market    See Answer
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Transcribed Image Text

Logic Legal Leverage (LLL) is evaluating a project that has abeta coefficient equal to 1.3. The risk- free rate is 3 percent andthe market risk pre- mium is 6 percent. The project, which requiresan investment of $405,000, will generate $165,000 after-taxoperating cash flows for the next three years. Should LLL purchasethe project? Excuse me, but I am stumped on this and the answerlisted feels incorrect to me. Any thoughts?

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