A Firm Is Valued at $6 Million and Has Debt

question 48

Multiple Choice

A firm is valued at $6 million and has debt of $2 million outstanding. The firm has an equity beta of 1.8 and a debt beta of .42. The beta of the overall firm is:

• A) 1.00.
• B) 1.11.
• C) 1.20.
• D) 1.34.
• E) It is impossible to determine with the information given.

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Definitions:

Residual Value

The estimated worth or salvage value of an asset at the end of its useful life.

Net Income

The total profit of a company after all expenses, including taxes and operational expenses, have been deducted from total revenue; essentially, it's the bottom line of the income statement.

Average Rate

A term often used in finance to describe the mean rate of return or the mean rate of interest over a specified period.

Fixed Asset

Fixed asset, also known as a non-current asset, is a long-term tangible piece of property or equipment that a firm owns and uses in its operations to generate income.