Calculate the Cost of Equity for Boston Industries Using the Following

question 47

Multiple Choice

Calculate the cost of equity for Boston Industries using the following information: The cost of debt is 7%,the corporate tax rate is 40%,the rate on Treasury Bills is 4%,the firm has a beta of 1.1,and the expected return on the market is 12%.

• A)12.8%
• B)12.6%
• C)13.2%
• D)6.6%

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Definitions:

Social Security Taxes

Taxes levied on both employers and employees to fund the Social Security program, which provides retirement, disability, and survivorship benefits.

Tax Refund

A tax refund is the return of excess taxes paid by an individual or business to the government, usually received after the annual tax return is processed.

Whole Life Insurance

A type of insurance that combines a life insurance policy with an investment feature; policyholders pay a premium that is divided between the insurance portion and the investment portion.

Cash Value

The value of the investment portion of a whole life insurance policy.