Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
17th Edition
ISBN: 9780134870069
Author: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher: PEARSON
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Chapter 13, Problem 2P
To determine

The estimated cost of equity capital based on CAPM.

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Assume that the risk-free rate (RF) is 3% and the market risk premium (km - Rp) is 8%. If the value of beta (B) is 0.5, the value for the component cost of equity financing is 3%. 7%. 11%. 5%.
Are the investment decisions based solely on an estimate of a project's profitability?
John wants to invest $1 000 000. He has two options. The first option is to buy government bonds that earn 4% annually. The second option is to buy an apartment building that brings him $100 000 per year in revenues. Compare the two options in terms of their internal rates of return. (Your answer in the answer box should be either 1 or 2). Calculations should be provided.
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