The expected return as per the capital asset pricing model (CAPM). Introduction: Capital asset pricing model (CAPM) describes the relationship between the projected return for assets and systematic risk on the stocks. It is utilized to compute the required rate of return for the risky asset. Expected return refers to a return that the investors expect on a risky investment in the future. Beta is an important indicator of the risk of a security. It measures the systematic risk of a risky investment by comparing the risky investment with the average risky asset in the market.

Question

Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects require an annual return of 14 percent. New Submarine Deepwater Fishing Year Ride 0 -$875,000 1 330,000 2 480,000 3 440,000 -$1,650,000 890,000 730,000 590,000 a-1. Compute the IRR for both projects. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Deepwater Fishing Submarine Ride 19.16 % 17.50% a-2. Based on the IRR, which project should you choose? Deepwater Fishing Submarine Ride b-1. Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Incremental IRR 14.96 % b-2. Based on the incremental IRR, which project should you choose? Submarine Ride Deepwater Fishing

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Question

Chapter 11, Problem 50P

Summary Introduction

To determine: The expected return as per the capital asset pricing model (CAPM).

Introduction:

Capital asset pricing model (CAPM) describes the relationship between the projected return for assets and systematic risk on the stocks. It is utilized to compute the required rate of return for the risky asset.

Expected return refers to a return that the investors expect on a risky investment in the future.

Beta is an important indicator of the risk of a security. It measures the systematic risk of a risky investment by comparing the risky investment with the average risky asset in the market.

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