Arizona Rock,an All-Equity Firm,currently Has a Beta of 1

question 177

Multiple Choice

Arizona Rock,an all-equity firm,currently has a beta of 1.25,and r_RF = 7 percent and r_M = 14 percent.Suppose the firm sells 10 percent of its assets (beta = 1.25) and purchases the same proportion of new assets with a beta of 1.1.What will be the firm's new overall required rate of return,and what rate of return must the new assets produce in order to leave the stock price unchanged?

• A) 15.645%;15.645%
• B) 15.75%;14.7%
• C) 15.645%;14.7%
• D) 15.75%;15.645%
• E) 14.75%;15.75%

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