the ABC co.hain its capital structure, a beta of 0.8, and raises all
funds through sale of common stock. The current market rate for
similar stock is 14% and the risk-free rate is 6%. The firm is
considering a project with a return of 12.9%. Should it accept the
project, and if so why (Show all work).
s no debt

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Clarification of Question by suj115-ga on 03 Oct 2004 18:04 PDT

the ABC co.has no debt in its capital structure, a beta of 0.8, and raises all
funds through sale of common stock. The current market rate for
similar stock is 14% and the risk-free rate is 6%. The firm is
considering a project with a return of 12.9%. Should it accept the
project, and if so why (Show all work).

Suj --

There are two possible scenarios here:
1.  raise the money through stock sale or internal financing.  In this
case the answer is no.
2.  raise the money through borrowing, which is what a leasing
division of a competitor might do.  In this case the answer is yes.

This is more a finance strategy discussion than a capital structure
question with a single answer.

Best regards,

Omnivorous-GA