The Securities Market Line gives the opportunity cost of investing in capital projects.

Management considers investing in a capital project with an estimated beta value of only 0.50. The expected risk-free rate during the life of the project is 5%, and the expected market risk premium is 6%.

(a) What is the value of the project’s risk premium?

(b) What is the minimum acceptable rate of return on the project?

(c) Suppose that the revised estimate for the project’s beta is 1.20. What would be the revised minimum acceptable rate of return for the project?