A Firm Has a Beta of 1

question 23

Multiple Choice

A firm has a beta of 1.2. The return in the market is 14%, and the risk-free rate is 6%. The estimated cost of common stock equity is ____.

• A) 6%
• B) 7.2%
• C) 15.6%
• D) 14%

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Definitions:

Fixed Costs

Expenses that do not vary with the level of output or sales, such as rent, insurance, and salaries, distinguished by their consistency.

Marginal Costs

The extra cost incurred by producing one additional unit of a product.

Indifferent

A state where an individual or group has no preference or difference in satisfaction among options, showing no bias or partiality towards any choice.

Break Even

The point at which total costs and total revenues are equal, resulting in no net loss or gain.