Gamma Biosciences is financed entirely with equity Its beta is 1 5, and its price earnings ratio is 16 The current risk free rate is 8 percent, and the expected return on the market is 14 percent a What rate of return should the company require on projects of average risk b If a new project has a b...

Gamma Biosciences is financed entirely with equity. Its beta is 1.5, and its price-earnings ratio is 16.

Question:

Gamma Biosciences is financed entirely with equity. Its beta is 1.5, and its price-earnings ratio is 16. The current risk-free rate is 8 percent, and the on the market is 14 percent.
a. What rate of return should the company require on projects of average risk?
b. If a new project has a beta of 2.0, what rate of return should the company require?

Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...