Project selection and equivalent CAPM-based investment criteria
AbstractThis 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.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 14526.
Date of creation: 2007
Date of revision:
Publication status: Published in Applied Financial Economics Letters 2.3(2007): pp. 165-168
Capital budgeting; investment decisions; capital asset pricing model; equivalence;
Other versions of this item:
- Carlo Alberto Magni, 2007. "Project selection and equivalent CAPM-based investment criteria," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 3(3), pages 165-168.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carlo Alberto Magni, 2007.
"Project valuation and investment decisions: CAPM versus arbitrage,"
Applied Financial Economics Letters,
Taylor and Francis Journals, vol. 3(2), pages 137-140.
- Magni, Carlo Alberto, 2007. "Project valuation and investment decisions: CAPM versus arbitrage," MPRA Paper 14525, University Library of Munich, Germany.
- Mossin, Jan, 1969. "Security Pricing and Investment Criteria in Competitive Markets," American Economic Review, American Economic Association, vol. 59(5), pages 749-56, December.
- Stapleton, Richard C, 1974. "Capital Budgeting under Uncertainty: A Reformation: Comment," Journal of Finance, American Finance Association, vol. 29(5), pages 1583-84, December.
- Bierman, Harold, Jr & Hass, Jerome E, 1973. "Capital Budgeting Under Uncertainty: A Reformulation," Journal of Finance, American Finance Association, vol. 28(1), pages 119-29, March.
- Litzenberger, Robert H. & Budd, Alan P., 1970. "Corporate Investment Criteria and the Valuation of Risk Assets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 5(4-5), pages 395-419, December.
- Magni, Carlo Alberto, 2007. "CAPM and capital budgeting: present versus future, equilibrium versus disequilibrium, decision versus valuation," MPRA Paper 5468, University Library of Munich, Germany.
- Magni, Carlo Alberto, 2009.
"Correct or incorrect application of CAPM? Correct or incorrect decisions with CAPM?,"
European Journal of Operational Research,
Elsevier, vol. 192(2), pages 549-560, January.
- Magni, Carlo Alberto, 2007. "Correct or incorrect application of CAPM? Correct or incorrect decisions with CAPM?," MPRA Paper 5471, University Library of Munich, Germany.
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