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1) You are computing the discount rate for a project in the furniture business. Your firm is 100% equity financed and will remain that way. There are three publicly traded firms that are in the furniture business and are not involved in any other lines of business. However, only one of these three firms is 100% equity financed. You should only use the 100% equity-financed “pure play” for your calculations because the equity betas of the other two pure plays are higher than their respective asset betas due to the presence of debt. Is the statement correct?

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Basic Finance, Finance

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