1 Checked Capital Budgeting /RR 2 3 4 Risk Free Rate Beta of company's stock Risk Premium on average stock 3.3% 2.4 5.9% 5 6 7 Hint: you will need to apply the CAPM to estimate the firm's cost of equity capital. 8 9 Cash Flows -47 0 11 15 11 12 15 11 12 13 16 10 Please compare the IRR to the cost of capital: 11 12 13 14 IRR Cost of Capital (Required Return) Difference (IRR - Cost of Capital) 15 16 13 17 10 19 18 GENOEG GER 19 1. What is the difference in IRR and cost of capital? A Between -10.0% and -4.0% B Between -4.0% and 0.0% C Between 0.0% and 4.0% D Between 4.0% and 10.0% 20 21 22 23 24 2. Should the firm accept the project? A Yes B No 25