As a Financial Analyst, You Are Tasked with Evaluating a Capital-Budgeting

question 11

Multiple Choice

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 4%, and the expected market rate of return is 11%. Your company has a beta of 0.75, 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. According to CAPM, the appropriate hurdle rate would be

• A) 4%.
• B) 9.25%.
• C) 15%.
• D) 11%.
• E) 0.75%.

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Definitions:

Ask Price

The lowest price a seller is willing to accept for a security, often used in contrast with the bid price, which is the highest price a buyer is willing to pay.

Wall Street Journal

A leading American business-focused, English-language international daily newspaper based in New York City.

Invoice Price

The initial price stated by a manufacturer or producer on the invoice sent to a wholesaler or retailer, before any discounts or allowances.

Coupon Bond

A debt security that pays the holder periodic interest payments until maturity, at which point the principal is repaid.