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 1.0, 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)7%.
C)15%.
D)11%.

Question

Quizplus · Accepted Answer

The Capital Asset Pricing Model (CAPM) formula is used to calculate the expected return (or hurdle rate) for an investment based on its risk relative to the market. The formula is: Expected Return = Risk-Free Rate + Beta * (Market Rate of Return - Risk-Free Rate). Given the risk-free rate is 4%, the market rate of return is 11%, and the company's beta is 1.0, the calculation is: 4% + 1.0 * (11% - 4%) = 4% + 7% = 11%.

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