The correct opportunity cost for a project is determined to be 15% and the project is expected to generate $1 million in cash flows at the end of the next four years after an initial outlay of $3 million.Based on this information, the project would plot:
A)Above the security market line
B)Below the security market line
C)On the security market line
D)On the security market line, with a Beta of 1.0

Question

Quizplus · Accepted Answer

The project's opportunity cost of 15% is higher than the internal rate of return (IRR) calculated from the cash flows, indicating it would plot below the security market line.

The Correct Opportunity Cost for a Project Is Determined to Be