What does the Efficient Market Hypothesis (EMH) imply for investors who buy and sell stocks in an attempt to beat the market?
Now, suppose that two companies are looking at the same project.
Company "A" has a beta of 1.5 and a cost of capital of 25%. Company "B" has a beta of 0.8 and a cost of capital of 15%.
When evaluated at a rate of 15%, the project shows an NPV of +$5 million, and when evaluated at a rate of 25%, the project shows an NPV of -$2 million.
Should either company accept the project, and if so, under what conditions?