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Runningheader; Beta and Capital budgeting 1
Beta and Capital budgeting
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Beta and Capital budgeting 2
Discussion1
Beta is the measure of how volatile a security investment compares to the entire market.
Beta is used in calculating risks involved in marketing it is also a key component in Capital
Asset Pricing Model. Beta plays a huge role when making decisions such as investing for a
company. Beta influences investors' decision s by either encouraging or discouraging investors
as it provides information on a company’s financial status. It is noted that when a company has a
higher beta than the market it is said to have greater risks, but this puts the company in a position
of having greater returns.
Internal return rate (IRR) is a calculation done on the business firm to assess the
profitability a company can get from a certain business. The internal return rate differs a lot from
the NPV as NPV is the difference between the two parameters of cash flow. It is noted that both
NPV and IRR are used in capital budgeting. Because the two parameters are used in capital
budgeting, it is of great essence to know which is the best parameter. When IRR is applied it
omits factors such as different return rates which may result in errors(Bora, 2015). This often
results in companies using the Net Present Value.

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Runningheader; Beta and Capital budgeting 1 Beta and Capital budgeting Title Student name Course name Course code Professor's name Date Beta and Capital budgeting 2 Discussion1 Beta is the measure of how volatile a security investment compares to the entire market. Beta is used in calculating risks involved in marketing it is also a key component in Capital Asset Pricing Model. Beta plays a huge role when making decisions such as investing for a company. Beta influences investors' decision s by either encouraging or discouraging investors as it provides information on a company’s financial status. It is noted that when a company has a higher beta than the market it is said to have greater risks, but this puts the company in a position of having greater returns. Internal return rate (IRR) is a calculation done on the business firm to assess the profitability a company can get from a certain business. The internal return rate differs a lot from the NPV as NPV is the difference between the two parameters of cash flow. It is noted that both NPV and IRR are used in capital budgeting. Because the two parameters are used in capital budgeting, it is of great essence to know which is the best parameter. When IRR is applied it omits factors such as different return rates which may result in errors(Bora, 2015). This often results in companies using the Net Present Value. Beta and Capital budgeting 3 Discussion 2 When using beta its is essential that the client is made to und ...
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