Using the CAPM to calculate the cost of capital for a risky project assumes that:
A)using the firm's beta is the same measure of risk as the project.
B)the firm is all-equity financed.
C)the financial risk is equal to business risk.
D)Both A and B.
E)Both A and C.

Question

Quizplus · Accepted Answer

The CAPM assumes that the project's risk is similar to the firm's overall risk (A) and that the firm is all-equity financed (B), meaning no debt is considered in the risk calculation.

Using the CAPM to Calculate the Cost of Capital for a Risky