How can we tell if a project creates value for the owners?
A)If the ROE falls on the SML
B)If the ROE liess above the SML
C)If the ROE is greater than the risk-free rate of return
D)If the ROE is greater than the market portfolio

Question

Quizplus · Accepted Answer

The best way to determine if a project creates value for the owners is by comparing the project's return on equity (ROE) to the required return of equity, which is represented by the Security Market Line (SML). If the ROE is greater than the SML, it indicates that the project is generating returns that are higher than what investors require for the level of risk associated with the investment. This means that the project is creating value for the owners.

How Can We Tell If a Project Creates Value for the Owners