The DMT Company Is Financed Entirely with Equity

question 26

Multiple Choice

The DMT Company is financed entirely with equity. DMT has a beta of 1.20 and the current risk-free rate is 9.5 percent. If the expected market return is 14 percent, what rate of return should DMT require on a project of average risk?

• A) 14.9%
• B) 15.4%
• C) 14.0%
• D) 12.0%

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Definitions:

Seasonal

Refers to patterns, trends, or fluctuations that recur at specific times of the year.

Winterize

The process of preparing something, such as a vehicle or a home, for cold winter conditions to prevent damage.

Television Commercials

Television commercials are a form of advertising that involves paying for space to promote a product, service, or cause on television channels.

Reminder

A marketing tool aimed at prompting consumers about a product or service, especially those that are not regularly bought or are seasonal.