Posted: September 21st, 2016

XYZ has an asset beta of 1 and a cost of capital of 15%. A new project is being explored with a beta of .2 and an IRR of 10%.

XYZ has an asset beta of 1 and a cost of capital of 15%. A new project is being explored with a beta of .2 and an IRR of 10%. Inserting the projects beta into the CAPM reveals a return of 5% based on project risk. Should the firm accept or reject the project? Explain.