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Project selection and equivalent CAPM-based investment criteria

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  • Carlo Alberto Magni

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 risk-adjusted 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.

Suggested Citation

  • Carlo Alberto Magni, 2007. "Project selection and equivalent CAPM-based investment criteria," Applied Financial Economics Letters, Taylor & Francis Journals, vol. 3(3), pages 165-168.
    • Handle: RePEc:taf:raflxx:v:3:y:2007:i:3:p:165-168
    DOI: 10.1080/17446540600883202
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