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 5 percent and the expected market rate of return is 10 percent.Your company has a beta of 0.67 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)10
B)5
C)8.35
D)28.35
E)0.67

Question

Quizplus · Accepted Answer

The appropriate hurdle rate can be calculated using the CAPM formula:
risk-free rate + beta*(expected market rate of return - risk-free rate)

Plugging in the given values, we get:
Hurdle rate = 5% + 0.67*(10% - 5%) 
= 5% + 0.67*5%
= 5% + 3.35%
= 8.35%

Therefore, the appropriate hurdle rate using CAPM is 8.35%. Option C is the correct answer.

As a Financial Analyst,you Are Tasked with Evaluating a Capital