B E F G H.HU D Capital Budgeting IRR 1 Checked 2 3 4 Risk Free Rate Beta of company's stock Risk Premium on average stock 3.7% 1.4 5.6% 5 6 7 Using the IRR approach to capital budgeting, should the firm adopt this project? 8 9 10 Cash Flows -91 0 12 16 15 14 11 13 15 17 16 16 14 28 Hint: you will need to apply the CAPM to estimate the firm's cost of equity capital. 11 12 13 14 AN Please compare the IRR to the cost of capital: 15 16 17 18 19 IRR Cost of Capital (Required Return) Difference (IRR - Cost of Capital) 20 8 8 8 8 N N & A 21 #1 What is that difference? 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% 22 23 24 25