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

question 79

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 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. According to CAPM, the appropriate hurdle rate would be

• A) 10%.
• B) 5%.
• C) 8.35%.
• D) 28.35%.
• E) 0.67%.

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Definitions:

Tax Gains

The financial gains attained from investments that are subject to taxation.

Acquisition

The process by which one company takes over another, either through the purchase of its shares or assets.

Operating Losses

Losses incurred from a company's everyday operational activities not offset by revenue.

Synergistic Benefits

The additional value created by combining two or more companies or assets, which is above what individual entities can generate on their own.