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:

Hue

A color or shade in the spectrum of visible light, often identified as a color name like red, blue, or green.

Optic Nerve

The optic nerve is a crucial part of the eye and visual system, transmitting visual information from the retina to the brain.

Blind Spot

An area in the visual field that lacks light-detecting photoreceptor cells, making it insensitive to light.

Ganglion Cells

Specialized neurons located in the retina that play a critical role in the visual system by transmitting image information from the photoreceptors to the brain.