11.5 Selecting Appropriate Betas for Projects
If we return to our philosophy regarding capital budgeting decisions in which we accept all positive NPV projects and reject all negative NPV projects, we can view a company itself as a portfolio, a collection of projects. If we assume that we can obtain sufficient financing for all positive NPV projects, selecting the portfolio of projects for the company is straightforward: accept all positive NPV projects. One problem in assessing the project’s risk level remains: How do we assign the appropriate beta? In the previous section, Kenny subjectively determined the beta for each individual project and then found the appropriate hurdle rate or WACC for each. We now need to learn more formally how to ...
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