Production Unlimited Has an Overall Beta of

question 25

Multiple Choice

Production Unlimited has an overall beta of .92 and a cost of equity of 10.8 percent for the firm overall. The firm is 100 percent financed with common stock. Division A within the firm has an
Estimated beta of 1.47 and is the riskiest of all of the firm's operations. What is an appropriate cost
Of capital for division A if the market risk premium is 6 percent?

• A) 9.9 percent
• B) 11.6 percent
• C) 14.1 percent
• D) 15.9 percent
• E) 16.7 percent

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Definitions:

Negligent

Failing to exercise the care that a reasonably prudent person would exhibit under similar circumstances.

Foreseen Users

Individuals who are reasonably anticipated to use a product or service, considered by manufacturers and service providers in liability assessments.

Near Privity

A legal doctrine that expands the scope of who can sue for breach of contract to include parties with a close enough relationship to the transaction, though not directly involved.

Negligent

The failure to take reasonable care to avoid causing injury or loss to another person, resulting in legal liability for the resulting damages.