Two Firms Have the Same Operating Structure and the Same

question 22

Multiple Choice

Two firms have the same operating structure and the same operating systematic risk, ß = .8. firm 1 has 20% debt in their capital structure while Firm 2 has four units of debt for every 7 units of equity. The tax rate faced by both firms is.4. The debt beta is assumed to zero. What is the difference in systematic risk between the riskier firm and the less risky firm?

• A) 0.26 Firm 2 beta greater than Firm 1 beta.
• B) 0.15 Firm 2 beta greater than Firm 1 beta.
• C) 0.30 Firm 2 beta greater than Firm 1 beta.
• D) 0.10 firm 2 beta greater than Firm 1 beta.

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Definitions:

Time-Consuming

Activities or processes that require a considerable amount of time to complete, often leading to a delay in achieving a goal or completing other tasks.

Personality Disorder

A type of mental disorder in which an individual has a rigid and unhealthy pattern of thinking, functioning, and behaving, often leading to significant distress or impairment in social, occupational, or other areas of functioning.

Dialectical Behavior

A therapeutic approach that focuses on living in the moment, coping healthily with stress, regulating emotions, and improving relationships with others, emphasizing dialectics or the balance between oppositesu200b.

Cognitive

Related to mental processes such as perception, memory, thought, and problem-solving.