Suppose that a foreign project has a beta of 1.15,the risk-free return is 13% and the required return on the market is estimated at 21%.Then the cost of capital for the project is

Question

Quizplus · Accepted Answer

Cost of capital can be calculated using the CAPM formula:
Cost of capital = Risk-free rate + Beta*(Market return - Risk-free rate)
= 13% + 1.15*(21% - 13%)
= 13% + 9.2%
= 22.2%
Therefore, the cost of capital for the foreign project is 22.2% which is closest to option B.

Suppose That a Foreign Project Has a Beta of 1