Use the Information for the Question(s)below

question 27

Multiple Choice

Use the information for the question(s) below.
Suppose that in the coming year,you expect Exxon-Mobil stock to have a volatility of 42% and a beta of 0.9,and Merck's stock to have a volatility of 24% and a beta of 1.1.The risk-free interest rate is 4% and the market's expected return is 12%.
-The cost of capital for a project with the same beta as Merck's stock is closest to:

• A)11.2%.
• B)12.8%.
• C)12.4%.
• D)11.6%.

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Definitions:

Financial Statements

Financial statements are formal records of the financial activities and position of a business, including the balance sheet, income statement, and cash flow statement.

Accruals

Accounting method that records revenues and expenses when they are incurred, regardless of when cash transactions occur.

Unrecorded Expense

A cost or liability that has been incurred but not yet documented or included in the financial records or statements of a company.

Unrecorded Revenue

Earnings from completed transactions or delivered goods/services that have not yet been documented in the financial accounts.