Piedmont Hotels is an all-equity firm with 60,000 shares of stock outstanding. The stock has a beta of 1.27 and a standard deviation of 13.8 percent. The market risk premium is 9.1 percent and the risk-free rate of return is 4.5 percent. The company is considering a project that it considers riskier than its current operations so it wants to apply an adjustment of 1 percent to the project's discount rate.
Required:
Question: What should the firm set as the required rate of return for the project?
- 13.92 percent
- 15.39 percent
- 12.54 percent
- 17.33 percent
- 17.06 percent
Note: Please provide reasons to support your answer.