Project selection and equivalent CAPM-based investment criteria

Carlo Alberto Magni

MPRA Paper from University Library of Munich, Germany

Abstract: This article shows that the Capital Asset Pricing Model-based capital budgeting criteria proposed by Tuttle and Litzenberger (1968), Mossin (1969), Hamada (1969), Stapleton (1971), Rubinstein (1973), Bierman and Hass (1973) and Bogue and Roll (1974) are equivalent. They all state that a project is profitable if its internal rate of return is greater than the riskadjusted 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.

Keywords: Capital budgeting; investment decisions; capital asset pricing model; equivalence (search for similar items in EconPapers)
JEL-codes: G10 G11 G30 G31 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (2)

Published in Applied Financial Economics Letters 2.3(2007): pp. 165-168

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