Question

Suppose a project is expected to have annual revenues of $45,000.00 for the next 10 years, beginning next year. The discount rate for the project is based on CAPM beta of 0.75. Assuming a risk-free rate of 3% and an expected market portfolio of 8%, what is the discount rate for the project? Further, assuming a cost of $300,000.00, what is the NPV (i.e., the discounted revenues less the cost) of the project?

Answer 1

Required rate of return (r)	Rf+β×Rp
Here,
Risk free rate of return (Rf)	3.00%
Beta of the stock (β)	0.75
Market risk premium (Rp)	5.00%	8%-3%
Required rate of return (r)	6.75%
	3%+0.75*5%