Assume That Expansion Ltd Is a Diversified Company That Is

question 21

Multiple Choice

Assume that Expansion Ltd is a diversified company that is considering an expansion project in a mining division.The company has a target debt-equity ratio of 1:2 and this ratio will not be affected by the new project.The company's manager has identified Dig-it-out Ltd as a company with the same business risk as the new project (equity beta of 1.5) .Dig-it-out has a debt-equity ratio of 1:3.Estimate the project's cost of equity for Expansion if the risk-free rate of interest is 7 per cent and the risk premium of the market portfolio is 10 per cent.

• A)18.25%
• B)22.0%
• C)24.5%
• D)23.88%

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Definitions:

Multiuser Systems

Computer systems that allow multiple users to access or operate the system simultaneously.

Coding The Algorithm

The process of translating a set of algorithm steps into a programmable language to solve a specific problem.

Pseudocode

A notational system for algorithms that combines elements of programming languages and natural language.

Software Systems Approach

A methodology in software development focused on designing and managing the interplay between different software components as a cohesive system.