Suppose Bobby Axelrod, the president, receives a proposal from a company seeking new capital. The amount needed to take a position in the stock is $50 million, it has an expected return of 15%, and its estimated beta is 1.1. New Company expected return E(R new) New Company beta (b new) 15% 1.1 Should Bobby Axelrod invest in the new company? New Company R = risk free rate (Rf) + New Company beta x Market Risk Premium (MRP)

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