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:

Dairy Products

Foods produced from the milk of mammals, such as cheese, yogurt, and butter.

Spicy Foods

Food items that contain strong spices and herbs which produce a hot or burning sensation in the mouth.

Isoflavones

A class of phytoestrogens, plant-derived compounds with estrogenic activity, commonly found in soy products.

Hot Flashes

Sudden feelings of warmth often accompanied by sweating and reddening of the face, commonly experienced during menopause.