Mr maneno is considering investing in a risky project which would be added to an existing portfolio. He foresees five possible status of the economy as follows.

Mr maneno is considering investing in a risky project which would be added to an existing portfolio. He foresees five possible status of the economy as follows.
Status of the probability return on return on proposed
Economy of existing portfolio investment
A 0.2 16% 12 %
B 0.4 18% 11 %
C 0.2 20% 10 %
D 0.1 22% 9%
E 0.1 24% 8%

The risk free rate of interest is 9%p.a.
Required:
a) Determine whether the proposed project is acceptable. (10 Marks)
b) Explain to Mr Maneno on the usefulness of CAPM in project appraisal.
( 5 Marks)

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