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:

Systems Approach

A holistic perspective that examines the interrelations and interactions within and among components of a complete system.

Behavioral Approach

A perspective in psychology and management focusing on understanding human behavior through observation and empirical data, often emphasizing the environment's role on behavior.

Multivariate Analysis

A set of statistical techniques used for analysis of data that involves multiple variables to understand relationships and patterns.

Contingency Approach

A management theory that suggests the most appropriate management style or approach depends on the specific aspects of the situation at hand.