I am given the following problem:
A firm currently owns assets worth $4$ milllion dollars that have a beta of 1. The risk-free interest rate is 10% and the market risk premium is 8%. Suppose the firm has the opportunity to invest in a project that will earn a 13% rate of return for certain into the indefinite future. The cost of the project is $1$ million dollars. Should the firm make the investment?
How do I solve it using CAPM or capital structure theory?
Is it correct to say that the firm should not invest because, using CAPM, the required rate of return should be:
$r_i = r_f + \beta_ * (E[R_{Mkt}] - r_f) = 18\%$