The required rate of return on the project is

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Case: An equity analyst at Value Line estimated Anheuser-Busch InBev's beta by regressing the excess return of Anheuser-Busch InBev's stock (i.e., the Y variable) on the excess market return (i.e., the X variable). He obtain the following regression equation:

Y=-0.0335+0.95X

The company is evaluating a proposal of building a new brewery in the West Coast. Suppose this project bears a level of risk that is similar to the company as a whole. Currently the risk-free rate is 3.5 percent, the expected return on the market portfolio is 10.75 percent, and the project offers an expected return of 9 percent.

Question 1. According to the CAPM, the required rate of return on the project is _________?

Question 2. Does the project have a positive or negative NPV? (Answer positive or negative.)

Reference no: EM133326282

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