Systematic risk and assessment of investment projects profitability

• Main Author: Милорад Иванишевић
• Format: Article
• Language: English
• Published: University of Banja Luka, Faculty of Economics 2013-02-01
• Series: Acta Economica
• Subjects: weighted аwerage cost of capital (WACC); capital asset princing model (CAPM); required rates of return; beta; debt; equity
• Online Access: http://ae.ef.unibl.org/index.php/AE/article/view/110

In the article is, first of all, considered weighted average cost of capital (WACC) as criteria for estimation profitability of investments. Afterwards, it is considered the Capital Asset Princing Model offering explanation for invested equity return correlation and systematic risk. Ten it is analyzed connection between these two models in regard to direct connection of required rates of return on debt and equity with their beta coefficients. It is also stated that required rates of return affirmed by usage of the Capital Asset Princing Model can, under certain conditions, be used as criteria for estimation profitability of investments.