Project Selection And Equivalent CAPM-Based Investment Criteria

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Executive Summary

This paper shows that the CAPM-based capital budgeting criteria proposed by Tuttle and Litzenberger (1968), Mossin (1969), Hamada (1969), Stapleton (1971), Rubinstein (1973), Bierman and Hass (1973), Bogue and Roll (1974) are equivalent: They all state that a project is profitable if its internal rate of return is greater than the risk-adjusted cost of capital, where the latter is given by the sum of the risk-free rate and a risk-premium which is a function of the systematic risk of the project, itself a function of the project cost.

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