The Market Value of XYZ Corporation's Common Stock Is 40

question 46

Multiple Choice

The market value of XYZ Corporation's common stock is 40 million and the market value of the risk-free debt is 60 million. The beta of the company's common stock is 0.8, and the expected market risk premium is 10%. If the Treasury bill rate is 6%, what is the firm's cost of capital? (Assume no taxes.)

• A) 9.2%
• B) 14%
• C) 8.1%
• D) None of the above

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Definitions:

Openness to Experience

A personality trait typified by a willingness to try new things, creativity, curiosity, and an appreciation for art and beauty.

Big Five Traits

A psychological framework that characterizes human personality via five wide-ranging traits: openness, conscientiousness, extraversion, agreeableness, and neuroticism.

Factor Analysis

A statistical method used to identify underlying variables, or factors, that explain the pattern of correlations among multiple variables.

Correlate

To have a mutual relationship or connection, in which one thing affects or depends on another.