Project Evaluation - Using CAPM

Data: Company: Sportball Plc Products :Footballs and basketballs Capital to invest :£ 100.000 Project 1: Manufacture Shoes Project 2:Manufacture Shirts ProjectRevenues 1st Year2nd Year3rd Year Shoes £ 80,000 £ 75,000 £ 25,000 Shirts £ 60,000 £ 50,000 £ 50,000 Rate on a Gov Bond(The risk-free rate):5% FTSE 100 (Expected rate of the market):8% Sportball's β:0.90 Shoes Leader's β:0.95 Shirts Leader's β:1.1 a)Which project should Sportball plc choose? In order to be able to decide anyone of the projects, first of all we must analyze the ß previously that we will choose …

…costs to evaluate cash flows they are, Incidental effects or side effects of a project, sunk costs, net working capital, Opportunity cost (as we saw earlier), Financing costs. As a conclusion and after reading many author, we can say that, in spite of being sometimes a little difficult to find the cash flows, they still being the most appropriate to obtain a more accurate project evaluation as they represent a real cash in and out.