Consider an entrepreneur who plans to invest in a project that requires an initial investment of $1,800 this year. The p

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Consider An Entrepreneur Who Plans To Invest In A Project That Requires An Initial Investment Of 1 800 This Year The P 1 (35.47 KiB) Viewed 62 times

Consider an entrepreneur who plans to invest in a project that requires an initial investment of $1,800 this year. The project will generate either $1,600 or $4,200 next year. The cash flows of the project depend on whether the economy is weak or strong. Both scenarios are equally likely. The risk-free rate is 4% and the risk premium of the project is 12%. Assume perfect capital markets. Now assume that the entrepreneur will borrow $400 at 5% interest rate to finance the project. The cost of equity of the project is closest to: 16.60% 17.72% 18.29% 19.43% None of the above