In evaluating the required rate of return for equity financing of a capital project,the Beta value is
A)the expected rate of growth in a firm's profits.
B)the expected future value of a firm's stock.
C)the volatility in the rate of return on a firm's stock compared with the volatility in the rate of return on a market portfolio of stocks.
D)None of the above

Question

Quizplus · Accepted Answer

Beta value is a measurement of the volatility (risk) in the rate of return on a firm's stock compared to the volatility in the rate of return on a market portfolio of stocks. It is used in determining the required rate of return for equity financing of a capital project. Therefore, option C is the correct choice. Option A is incorrect because beta value is not related to the expected rate of growth in a firm's profits. Option B is incorrect because it relates to the expected future value of a firm's stock, not the required rate of return for equity financing. Option D is incorrect because one of the options is correct.

In Evaluating the Required Rate of Return for Equity Financing