A company is considering investing in a new project that has the potential to earn them $1,000,000
Fantastic news! We've Found the answer you've been seeking!
Question:
A company is considering investing in a new project that has the potential to earn them $1,000,000 in profit. However, there is a 30% chance that the project will fail and result in a loss of $500,000. The company is risk-averse and wants to calculate the minimum required rate of return for the project to be considered acceptable.
Using the capital asset pricing model (CAPM), calculate the required rate of return for the project. Assume that the risk-free rate is 5%, the market risk premium is 10%, and the company has a beta of 1.5.
Express your final answer as a percentage and show all the calculations.
Related Book For
Managerial Economics A Problem Solving Approach
ISBN: 978-1133951483
3rd edition
Authors: Luke M. Froeb, Brian T. McCann, Mikhael Shor, Michael R. War
Posted Date: