connect value 1000 ponts A project under consideration has a

connect value 10.00 ponts A project under consideration has an internal rate of return of 15% and a beta of .4. Tho risk-free rate is 5%. and the expected rate of return on the market portfolio is 15%. a-1. What is the required rate of return on the project? (Do not round Intermediate calculations. Enter your anawer as a whole percent) uired rate of return a-2. Should the project be accepted? O Yes O No b-1. What is the required rate of return on the project if ts beta is 1.42 (Do not round intermediate calculations. Enter your anewer as a whole percent.) Required rate of return b-2. Shouid the project be accepted? O Yes O No Hints References eBook & Resources Hint #i

Solution

a-1 Required rate of return 9% As per Capital Asset Pricing Method, Required rate of return = Risk free rate+Beta*(return on market portfolio-risk free rate) = 5% + 0.4 x (15%-4%) = 9% a-2 Yes As Internal rate of return is more than required return which is minimum return an investor expects, project should be accepted. b-1 Required rate of return 20% As per Capital Asset Pricing Method, Required rate of return = Risk free rate+Beta*(return on market portfolio-risk free rate) = 5% + 1.4 x (15%-4%) = 20% b-2 No As Internal rate of return is less than required return, project should not be accepted.