Question

A project under consideration has an internal rate of return of 17% and a beta of 0.5. The risk-free rate is 9%, and the expected rate of return on the market portfolio is 17%.

**a.** What is the required rate of return on the
project? **(Do not round intermediate calculations. Enter
your answer as a whole percent.)**

**b.** Should the project be accepted?

**c.** What is the required rate of return on the
project if its beta is 1.50? **(Do not round intermediate
calculations. Enter your answer as a whole percent.)**

**d.** If project's beta is 1.50, should the
project be accepted?

Answer #1

Answer a)

Required Rate of Return = RF + beta (Rm - Rf)

= 9% + 0.5(17% - 9%)

= 13%

Answer b)

IRR is higher than the required rate of return, project should be accepted.

Answer c)

Required Rate of Return = RF + beta (Rm - Rf)

= 9% + 1.5(17% - 9%)

= 21%

Answer d)

IRR is now lower than the Required rateof return, therefore project should be rejected.

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