Assume a Firm Can Be Financed with $400 of Debt

question 57

Multiple Choice

Assume a firm can be financed with $400 of debt that has a market beta of 0.2 and $600 of equity that has a beta of 2.0. If the risk-free rate is 3.5% and the equity premium is 5%, what is
The cost of capital of the overall firm?

• A)4.5%
• B)13.5%
• C)4.9%
• D)9.9%

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