As a financial analyst, you are tasked with evaluating a capital-budgeting project.You were instructed to use the IRR method, and you need to determine an appropriate hurdle rate.The risk-free rate is 4%, and the expected market rate of return is 11%.Your company has a beta of 1.4, and the project that you are evaluating is considered to have risk equal to the average project that the company has accepted in the past.According to CAPM, the appropriate hurdle rate would be
A)13.8%.
B)7%.
C)15%.
D)4%.

Question

Quizplus · Accepted Answer

According to CAPM, the appropriate hurdle rate is calculated using the formula:
Hurdle Rate = Risk-Free Rate + Beta * (Expected Market Rate of Return - Risk-Free Rate)

Plugging in the given values, we get:
Hurdle Rate = 4% + 1.4 * (11% - 4%)
Hurdle Rate = 4% + 1.4 * 7%
Hurdle Rate = 4% + 9.8%
Hurdle Rate = 13.8%

Therefore, the appropriate hurdle rate for the capital-budgeting project using the IRR method is 13.8%. The best choice is A.

As a Financial Analyst, You Are Tasked with Evaluating a Capital-Budgeting