RKKL Is Considering Buying a Company That Has No Leverage

question 24

Multiple Choice

RKKL is considering buying a company that has no leverage but an asset beta of.7. The market risk premium is 6% and the risk-free rate is 2%. If they plan to use 75% debt, what will the required rate of return be?

• A) 18.8%
• B) 6.2%
• C) 8.0%
• D) 14.6%

---

Definitions:

Tenancy in Partnership

Tenancy in Partnership describes a form of ownership where partners possess an undivided interest in property owned by the partnership for the purpose of the partnership's business.

Tenancy in Common

A form of ownership where two or more individuals own property together, each holding a distinct, undivided interest.

Joint Tenancy

A form of property ownership by two or more parties who have equal rights to the entire property, including the right of survivorship, so when one owner dies, their share automatically passes to the surviving owners.

Right of Survivorship

A legal principle in real estate that allows property to automatically pass to the surviving owner(s) upon the death of another owner.