Suppose Firm 1 is 100% equity financed.  Firm 1 has a project available that offers a 10% return on average and has the same systematic risk as Firm 1.  Assume that the risk-free rate is 2%, the stock market return premium (Rm - Rf) is 7%, the CAPM beta is 1.3, and estimate the future required return for Firm 1 (when estimating the required return for Firm 1 going forward, assume an alpha of zero).  All returns are on an annual basis. Should Firm 1 do its project?

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