Average Stocks Are Yielding 7

question 11

Multiple Choice

Average stocks are yielding 7.0%, while short term treasuries return 3.0%. Marshall Inc. has a beta of 1.3 and is considering a new venture into an industry with direct competitors who have betas that average 1.8. What discount rate should Marshall use in evaluating the cash flows from this project?

• A)10.0%
• B)8.2%
• C)4.8%
• D)10.2%

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Definitions:

Microorganisms

Small, living organisms that may be seen only with the aid of a microscope.

Melanin Production

The process through which cells known as melanocytes produce melanin, a pigment responsible for the coloration of skin, hair, and eyes.

Arrector Pili Muscles

Small muscles connected to hair follicles that, when contracted, cause hair to stand on end, known as "goosebumps."

Ultraviolet Light Rays

A form of electromagnetic radiation with a wavelength shorter than that of visible light, known for its ability to induce suntans and sunburn.