Financial Risk Manager Part 2
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A company specializing in the production of packaging materials is considering undertaking a new project. The project is expected to deliver a Risk-Adjusted Return on Capital (RAROC) of 12%. Key financial data relevant to the decision includes an annual risk-free rate of 4%, a market's expected rate of return of 10% per annum, and an equity beta of 1.5 for the firm's stock. The company uses the modified RAROC measure to evaluate its potential projects. Based on this information, what decision should the company make concerning this project, and what is the justification for this decision?
A company specializing in the production of packaging materials is considering undertaking a new project. The project is expected to deliver a Risk-Adjusted Return on Capital (RAROC) of 12%. Key financial data relevant to the decision includes an annual risk-free rate of 4%, a market's expected rate of return of 10% per annum, and an equity beta of 1.5 for the firm's stock. The company uses the modified RAROC measure to evaluate its potential projects. Based on this information, what decision should the company make concerning this project, and what is the justification for this decision?
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