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Y_Kistochka [10]
3 years ago
8

Suppose that you are the CFO of ABC Inc., which is an all-equity firm whose beta is 0.5. You are considering a new project that

is in the same line of business as ABC Inc.’s existing projects. Assume that the CAPM holds. The risk-free rate is 2% and the market risk premium 6%. What is the discount rate for this new project?
Business
1 answer:
neonofarm [45]3 years ago
5 0

Answer:

The discount rate for this project is 5%.

Explanation:

The discount rate for the new project will be the required rate of return or the cost of equity that will be used to discount the cash flows from the project to calculate its Net present value. Using the CAPM, we can calculate the required rate of return (r) as:

r = rRF + beta * rpM

Where,

  • rRF is the risk free rate
  • beta is the stock's beta or measure of risk
  • rpM is the market risk premium

r = 2% + 0.5 * 6% = 0.05 or 5%

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3 years ago
A difference between the static budget and the flexible budget is called the ________. a. total variance. b. volume variance. c.
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Answer:

b. volume variance.

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3 years ago
Bend Company uses the allowance method to account for uncollectible receivables. At the beginning of the​ year, Allowance for Ba
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Answer:

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4 0
3 years ago
Burlan Paints, manufacturer of paints for both interiors and exteriors, prices its products differently in various international
belka [17]

Answer:  Market-differentiated

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Therefore, Market-differentiated is the correct answer.

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