Alto Music Is a Levered Company Providing Musical Instruments and Supplies

question 21

Multiple Choice

Alto Music is a levered company providing musical instruments and supplies through its retail outlets.The company is considering expanding into art supplies.Since this is an entirely new venture,the company should

• A)use the current company beta when computing the required risk premium for the project.
• B)use the market beta when computing the project's discount rate.
• C)increase the project's initial cost by a factor of (1 + Company β)to offset the increased risk.
• D)use the company's cost of equity as the project's discount rate.
• E)use the pure play approach to assign a discount rate to the project.

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Garden Path Sentence

A sentence that leads the reader towards one interpretation that ultimately reveals itself to be incorrect, forcing a reevaluation of the sentence’s syntax.

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A set of rules used in linguistics to describe the hierarchical structure of sentences.