Bruceton Hotels is an all-equity firm with 60,000 shares of stock outstanding. T

Question

Bruceton Hotels is an all-equity firm with 60,000 shares of stock outstanding. The stock has a beta of 1.27 and a standard deviation of 13.8 percent. The market risk premium is 9.1 percent and the risk-free rate of return is 4.2 percent. The company is considering a project that it considers riskier than its current operations so it wants to apply an adjustment of 1 percent to the projects discount rate. What should the firm set as the required rate of return for the project?
12.54
13.92
15.39
16.76
17.03

Explanation / Answer

Project Cost of Capital = 0.042 + 1.27(0.091) + 0.01 = 0.16757 = 16.757% so 16.76%

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