A firm has diVISion in two different industries - clotning and tourism. It is considering two projects, one in each industry. The following table shows the typical beta of firms operating wholly within those industries, along with the Internal Rate of Return of each project. The risk free rate of return is 3.3% and the expected return on the market is 12.2%. Project Industry Beta IRR A Clothing 0.9 11.61% Tourism 1.7 17.93% What is the appropriate cost of capital to use as a discount rate to evaluate these projects?

A firm has diVISion in two different industries - clotning and tourism. It is considering two projects, one in each industry. The following table shows the typical beta of firms operating wholly within those industries, along with the Internal Rate of Return of each project. The risk free rate of return is 3.3% and the expected return on the market is 12.2%. Project Industry Beta IRR A Clothing 0.9 11.61% Tourism 1.7 17.93% What is the appropriate cost of capital to use as a discount rate to evaluate these projects?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 6P

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