The Market Value of Charcoal Corporation's Common Stock Is $20

question 46

Multiple Choice

The market value of Charcoal Corporation's common stock is $20 million,and the market value of its risk-free debt is $5 million.The beta of the company's common stock is 1.25,and the market risk premium is 8%.If the Treasury bill rate is 5%,what is the company's cost of capital? (Assume no taxes.)

• A)15%
• B)14.6%
• C)13%
• D)7%

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Definitions:

Investing Activities

Financial transactions related to the acquisition or disposal of long-term assets and other investments not included in cash equivalents.

Loans Receivable

Loans receivable are amounts owed to a lender by borrowers, recognized as assets on the lender's balance sheet.

Repayment

The act of paying back money previously borrowed from a lender.