California Best (CB), a Sport Shoe Store, Expects an Operating

question 28

Multiple Choice

California Best (CB) , a sport shoe store, expects an operating income of$2.3 million this year.CB has no long-term debt.The firm is considering as expansion project.The current risk-free rate of return is 7% and the current market risk premium is 8.3%.If CB's beta is 20% greater than the overall market, what is the firm's cost of capital? Assume that CB has a marginal tax rate of 40%.

• A)8.3%
• B)16.96%
• C)9.96%
• D)15.3%

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Definitions:

Sensory Register

The initial stage of memory, where sensory information is stored for a very short period of time before either being discarded or processed further.

Short-term Memory

The capacity for holding a small amount of information in an active, readily available state for a short period of time.

Chunk

A unit of information grouped together for easier processing and recall, often used in memory and learning strategies.

Recognition

The identification of something as having been previously seen, heard, known, or experienced.