Outside Johnnie's Has a Beta of 1

question 193

Multiple Choice

Outside Johnnie's has a beta of 1.3 and a cost of equity of 12.3 %. The risk-free rate of return is 4.5 %. Johnnie's is considering a project with a beta of 1.4 and a project life of six years. An appropriate discount rate for the project is:

• A) 12.33 %.
• B) 12.50 %.
• C) 12.78 %.
• D) 12.90 %.
• E) 13.11 %.

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Definitions:

Ethical Concern

An issue or situation that requires a judgement about what is morally right or wrong, fair or unfair, responsible or irresponsible.

Interlocking Directorate

A situation where the same individuals sit on the board of directors of several companies, potentially leading to conflicts of interest or undue influence across these companies.

Conflict Of Interest

A situation in which an individual's personal interest could interfere with or appear to interfere with the duties performed in an official capacity.

Corporate Governance Issues

Concerns or problems relating to the system of rules, practices, and processes by which a company is directed and controlled.