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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Definitions:

Visionary Organization

An entity guided by a clear, innovative vision for the future, often leading to groundbreaking advancements and leadership in its field.

Organizational Direction

The strategic aims and objectives that guide a company or organization’s decisions and activities towards achieving its long-term goals.

Organizational Foundation

The basic principles, values, and structure upon which an organization is built and operates.

Visionary Organization

An entity that leads with foresight and innovation, anticipating future trends and preparing for changes ahead of its competitors.