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data corp needs to buy new equipment to pursue new business lines in order to increase its value. the company has two options: also assume option b will get a tax rebate of $2,000 in year 4 and $1,500 in year 8. data corp has a beta of 1.3, the risk free rate is 2.5% and the market risk premium is 8%.

Answer :

As per CAPM expected return = 11.85%Option B is preferable as npv is higher.

Expected return = risk free rate + beta*risk premium = 0.025+1.7*(0.08-0.025)=0.1185=11.85%

The expected value of a financial investment's return is known as the expected return. It is a measurement of the random variable's distribution's centre, which is the return. The profit or loss an entrepreneur can anticipate realising from an investment is known as the expected return. Determining a rate of return critical parameter potential scenarios by their frequency before aggregating the results. Return expectations cannot be ensured. The predicted profit or loss on an enterprise with known historical return rates is known as the expected return (RoR). It is computed by dividing possible results by the likelihood that they will occur, adding the results, and then subtracting the results.

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