We considered the case of a project whose beta risk was equal to that of the firm.
Question:
We considered the case of a project whose beta risk was equal to that of the firm. If the firm is unlevered, the discount rate on the project is equal to:
RF (RM RF)
where RM is the expected return on the market portfolio and RF is the risk-free rate. In words, the discount rate on the project is equal to the CAPM’s estimate of the expected return on the security. LO.1
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