Louisiana Enterprises,an All-Equity Firm,is Considering a New Capital Investment

Multiple Choice

Louisiana Enterprises,an all-equity firm,is considering a new capital investment.Analysis has indicated that the proposed investment has a beta of 0.50 and will generate an expected return of 5.00%.The firm currently has a required return of 10.75% and a beta of 1.25.The investment,if undertaken,will double the firm's total assets.If r_RF is 7.00% and the market risk premium is 3.00%,should the firm undertake the investment?

A) Yes;the beta of the asset will reduce the risk of the firm.
B) No;the expected return of the asset is less than the firm's required return,which is 10.75%.
C) No;the expected return of the asset (5.00%) is less than the required return (8.50%) .
D) No;the risk of the asset (beta) will increase the firm's beta.
E) Yes;the expected return of the asset (5.00%) exceeds the required return (4.50%) .