According to CAPM, the appropriate hurdle rate would be
As a financial analyst, you are tasked with evaluating a capital-budgeting project. You were instructed to use the IRR method, and you need to determine an appropriate hurdle rate. The risk-free rate is 5%, and the expected market rate of return is 10%. Your company has a beta of 0.67, and the project that you are evaluating is considered to have risk equal to the average project that the company has accepted in the past.
A. 10%.
B. 5%.
C. 8.35%.
D. 28.35%.
E. 0.67%.
C. 8.35%.
The hurdle rate should be the required return from CAPM, or R = 5% + 0.67(10% – 5%) = 8.35%.
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