A standard definition of the Security Market Line is as follows:
The security market line ("SML" or "characteristic line") graphs the systematic (or market) risk versus the return of the whole market at a certain time and shows all risky marketable securities.
And an application of the SML for investment decision is as follows (according to my Corporate Finance Book):
to determine whether an investment has a positive NPV, we essentially compare the expected return on that new investment to what the financial market offers on an investment with the same beta. This is why the SML is so important: It tells us the “going rate” for bearing risk in the economy.
If one were to use these pieces of information, among many others, one would conclude that when choosing to invest in bonds, stocks at a certain risk one would at least expect returns that a similar investment would provide. However, the SML is not only applicable for such decisions but also for deciding the cost of capital or required rate of return for projects that a company may undertake. There are even maths in Finance books where they provide Beta, Expected Return and other variables for opening a new product line or some project.
However, In these events how would one find similar investment from SML? Opening a new product line, or running some project is different from stock or bond investments! How can they be comparable?