Question
In the current environment of almost-zero risk free rate, how should one think about applying CAPM to calculate the cost of capital for forward looking
In the current environment of "almost-zero" risk free rate, how should one think about applying CAPM to calculate the cost of capital for forward looking estimation of project NPV? What is a reasonable market risk premium to use? What is a reasonable risk free rate to use? What is a reasonable cost of capital if beta is one?
Solution: discussion must recognize that historical market premium gives very low cost of capital. Use economic reasoning to address it.
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Personal Finance
Authors: Jeff Madura
5th edition
132994348, 978-0132994347
