A Company Is Evaluating a Capital Project on a New

question 70

Multiple Choice

A company is evaluating a capital project on a new line of business for the firm. The firm's current cost of capital is 12%. However, another firm, whose principal focus is in the same field, is publicly traded and has a beta of 1.6. The market is currently yielding 12% and the yield on short-term treasury bills is 6%. The risk adjusted rate that should be used for this project is:

• A)12%.
• B)18%.
• C)25.2%.
• D)15.6%.

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Definitions:

Ossicles

The three smallest bones in the human body, located in the middle ear, responsible for transmitting sound vibrations from the ear drum to the inner ear.

Middle Ear

The air-filled central section of the ear, located behind the eardrum, which contains the ossicles that transmit sound vibrations to the inner ear.

Labyrinth/o

A prefix in medical terminology referring to the labyrinth of the inner ear, involved in hearing and balance.

Cochlea

A spiral-shaped cavity in the inner ear containing the organ of Corti, which produces nerve impulses in response to sound vibrations.