Purchase Solution

CAPM

Not what you're looking for?

Ask Custom Question

Louisiana Enterprises, an all-equity firm, is considering a new capital investment. Analysis has indicated that the proposed investment has a beta of 0.5 and will generate an expected return of 7 percent. The firm currently has a required return of 10.75 percent and a beta of 1.25. The investment, if undertaken, will double the firm's total assets. If kRF is 7 percent and the market return is 10 percent, should the firm undertake the investment? (Choose the best answer.)

a.Yes; the expected return of the asset (7%) exceeds the required return (6.5%).
b.Yes; the beta of the asset will reduce the risk of the firm.
c. No; the expected return of the asset (7%) is less than the required return (8.5%).
d.No; the risk of the asset (beta) will increase the firm's beta.
e.No; the expected return of the asset is less than the firm's required return, which is 10.75%.

Purchase this Solution

Solution Summary

Louisiana Enterprises for all equity firms new capital investments.

Solution Preview

Answer: c. No; the expected return of the asset (7%) is less than the required return (8.5%).

We find the required return on ...

Purchase this Solution


Free BrainMass Quizzes
Learning Lean

This quiz will help you understand the basic concepts of Lean.

Motivation

This tests some key elements of major motivation theories.

Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

Lean your Process

This quiz will help you understand the basic concepts of Lean.

Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.