29. CAPM and Hurdle Rates. A project under consideration has an internal rate of return of 14% and a beta of .6. The risk-free rate is 4%, and the expected rate of return on the market portfolio is 14%. (LO12-3) a. What is the required rate of return on the project? b. Should the project be accepted? c. What is the required rate of return on the project if its beta is 1.6? d. Should the project be accepted in this case?
29. CAPM and Hurdle Rates. A project under consideration has an internal rate of return of 14% and a beta of .6. The risk-free rate is 4%, and the expected rate of return on the market portfolio is 14%. (LO12-3) a. What is the required rate of return on the project? b. Should the project be accepted? c. What is the required rate of return on the project if its beta is 1.6? d. Should the project be accepted in this case?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:29. CAPM and Hurdle Rates. A project under consideration has an internal rate of return of 14%
and a beta of .6. The risk-free rate is 4%, and the expected rate of return on the market portfolio
is 14%. (LO12-3)
a. What is the required rate of return on the project?
b. Should the project be accepted?
c. What is the required rate of return on the project if its beta is 1.6?
d. Should the project be accepted in this case?
Expert Solution
Step 1
Internal rate of return(IRR) is the discount rate for conventional series of cash flows that discounts NPV(net present value) of that series to zero. It is used for shortlisting and selection of worthy investment project.
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