Consider the Following Information, and Then Calculate the Required Rate

question 59

Short Answer

Consider the following information, and then calculate the required rate of return for the Scientific Investment Fund. The total investment in the fund is $2 million.The market required rate of return is 15 percent, and the risk-free rate is 7 percent.
$\begin{array}{llcc} \text {Stock } & \text { Investment } & \text { Beta } \\\text { A } &\$ 200,000 & 1.50\\ \text { B } & 300,000&-0.50\\\text { C } & 500,000 & 1.25\\\text { D } & 1,000,000 & 0.75\\\end{array}$

a. $14.3 \%$
b. $15.0 \%$
c. $13.1 \%$
d. $12.7 \%$
e. $10.3 \%$

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Definitions:

Contribution Margin Ratio

A measure that calculates the portion of sales revenue that exceeds variable costs, expressed as a percentage.

Sales Dollar

The total revenue generated from selling goods or services, measured in dollars.

Operating Income

Earnings before interest and taxes (EBIT), representing the income generated from normal business operations.

Fixed Costs

Costs that do not fluctuate with the level of production or sales, such as rent, salaries, and insurance premiums.