A Very Large Firm Has a Debt Beta of Zero

question 17

Multiple Choice

A very large firm has a debt beta of zero. If the cost of equity is 10%,and the risk-free rate is 3%,the cost of debt is:

• A) 3%.
• B) 6%.
• C) 11%.
• D) 15%.
• E) It is impossible to tell without the expected market return.

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Definitions:

Liability

A company's legal financial debts or obligations that arise during the course of business operations.

Revenue

The total income generated by a company from its business activities, including sales of goods or services before any expenses are deducted.

Asset

An economic resource owned or controlled by an individual or company, expected to provide future benefits.

Liability

A financial obligation or debt owed by a business to an external entity that must be repaid.