The Cost of Equity for a Firm Is 20

question 14

Multiple Choice

The cost of equity for a firm is 20%. If the real interest rate is 5%, the inflation premium is 3%, and the market risk premium is 2%, what is the investment risk premium for the firm?

• A)10%
• B)12%
• C)13%
• D)15%

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Definitions:

Initial Value Method

An accounting method where investments are recorded at their acquisition cost without adjusting for changes in the value or performance of the investment over time.

Consolidation Entry G

An adjusting entry made during the consolidation process to eliminate intra-group transactions and balances in the preparation of consolidated financial statements.

Intra-entity Gross Profit

Refers to the profit generated from transactions within the same company or group, not yet realized from an external party's perspective.

Consolidation Process

The method of combining the financial statements of two or more legally separate entities into one set of financial statements for the group as a whole.