b. Satori Ltd is your second client. One of Satoris senior managers, Mark Powell, has proposed to enter into a new line of business. Marks project analysis yielded an estimated IRR of 26%. In his report, Mark compared the projects IRR to Satoris WACC of 12.5% and concluded that the project should be accepted. Given that Mark has a history of overestimating cash flow projections and underestimating the involved risk, the CEO is skeptical and asked you for your comments on Marks proposal. Your background research shows that the average beta coefficient for listed companies operating in the proposed business line is 2.0, confirming the high-risk nature of the project. Like Satori, these companies are all equity financed.
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