Trendsetters Has a Cost of Equity of 14

question 87

Multiple Choice

Trendsetters has a cost of equity of 14.6 percent.The market risk premium is 8.4 percent and the risk-free rate is 3.9 percent.The company is acquiring a competitor, which will increase the company's beta to 1.4.What effect, if any, will the acquisition have on the firm's cost of equity capital?

• A)No effect
• B)Decrease of .62 percent
• C)Decrease of .84 percent
• D)Increase of 1.06 percent
• E)Increase of .13 percent

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Definitions:

Obligation

A duty or commitment that one is bound to by law, promise, or moral responsibility.

Induced Behavior

Behavior that is influenced or triggered by external factors such as social pressure, environmental cues, or specific situations.

Value System

A coherent set of beliefs and values that guide the behavior of an individual or group.

Internalization

The process by which individuals incorporate and adopt the values, beliefs, and norms of a group or society as their own.