The Cost of Capital of Firm a Is 11

question 36

Multiple Choice

The cost of capital of Firm A is 11.2 percent compared to 14.1 percent for Firm B.The market rate of return is 10.8 percent and the risk-free rate is 4 percent.Firm A is considering the acquisition of Firm B.Should this acquisition occur,it will be financed with debt at an interest cost of 8.7 percent.Which of these rates is most appropriate to use as the discount rate when analyzing the acquisition of Firm B by Firm A?

• A)8.7%
• B)11.2%
• C)10.8%
• D)14.1%
• E)4)0%

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Definitions:

Generalized Anxiety Disorder

A chronic disorder characterized by excessive, long-lasting anxiety and worry about nonspecific life events, objects, and situations.

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Psychologists who emphasize the role of unconscious psychological processes and early life experiences in shaping personality and behavior.

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Researchers and theorists who study how societal and cultural factors influence human behavior and development.

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