The Equity Beta of a Firm That Is Financed with 40

question 10

Multiple Choice

The equity beta of a firm that is financed with 40% debt and 60% equity is 1.6. The beta of the debt is 0.1. The expected return on the market is 10%, and the risk-free rate is 5%. What rate
Of return should this firm require on its projects?

• A)5.5%
• B)13.0%
• C)10.0%
• D)15.0%

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Definitions:

Price Elasticity

A measure of the responsiveness of quantity demanded or supplied to a change in price.

Supply Curve

A graphical representation showing the relationship between the price of a good and the quantity of the good that suppliers are willing and able to sell.

Budget Proportion

Budget proportion refers to the allocation or division of an individual's or entity's budget among various expenses or categories.

Price Elasticity

An indicator of how sensitive the demand or supply for a product or service is to variations in its cost.