1a firm has an asset beta of 1 and a company cost of

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1. A firm has an asset beta of 1 and a company cost of capital of 15%. A new project comes along with a beta of .2 and an expected return (IRR) of 10%. Putting the project's beta into the CAPM gives the project a return of 5% based on project risk. Should the firm accept or reject the project? Explain.

2. Regression provides both a beta (used in the CAPM) and an alpha. There is an interest in "chasing alpha". What is alpha? Why would investors "chase alpha"? HINT: Putting "alpha risk investment"into any search engine will give you additional information. Be sure to put the information in your own words.

Reference no: EM13380675

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