A Project Is Determined to Have Equal Probability of Generating

question 100

Multiple Choice

A project is determined to have equal probability of generating $1 million annually or $500,000 annually for four years.The initial outlay is $2 million.The expected return on Treasury bills is 6% and the market risk premium is 8%.What is the highest project Beta that will justify acceptance of the project?

• A)0.0
• B)1.00
• C)1.56
• D)2.31

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Definitions:

Future Indicator

A measurable economic factor that changes before the economy starts to follow a particular pattern or trend, signaling future activities.

Supply-side Economics

An economic theory that suggests lower taxes and decreased regulation will stimulate the economy by increasing production.

Incentive

A factor, monetary or otherwise, that motivates individuals or entities to behave in a certain way.

Work

Physical or mental effort done in order to achieve a purpose or result, often related to employment or tasks.