CAPM Required Rate of Return 0.30 0.25E 0.20 B RM = 10% 0.15 WACC 0.10 A• 0.05 1.0 2.0 3.0 Rate of Return

Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter20: The Problem Of Adverse Selection Moral Hazard
Section: Chapter Questions
Problem 3MC
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Refer to the associated graph. Identify when the WACC approach to project acceptability agrees with the CAPM approach. When do recommendations of the two approaches differ? Explain why

CAPM Required
Rate of Return
0.30
0.25E
0.20
B
RM = 10%
0.15
WACC
0.10
A•
0.05
1.0
2.0
3.0
Rate of Return
Transcribed Image Text:CAPM Required Rate of Return 0.30 0.25E 0.20 B RM = 10% 0.15 WACC 0.10 A• 0.05 1.0 2.0 3.0 Rate of Return
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