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:

Standard Direct Materials

The predetermined cost and quantity of direct materials that are expected to be used in the production of a product.

Direct Materials Price

The cost per unit of raw materials used in the production of goods.

Standard Costs

predetermined costs assigned to goods and services, used as a benchmark for measuring performance.

Standard Price

The predetermined cost of acquiring goods and services, often used in budgeting and cost control.