Silo Mills Has a Beta of 0

question 11

Multiple Choice

Silo Mills has a beta of 0.95 and a cost of equity of 11.9 percent.The risk-free rate of return is 2.8 percent.The firm is currently considering a project that has a beta of 1.03 and a project life of 6 years.What discount rate should be assigned to this project?

• A)13.33 percent.
• B)12.67 percent.
• C)13.62 percent.
• D)13.84 percent.
• E)14.09 percent.

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Definitions:

Variable

An element, feature, or factor that is liable to vary or change.

Scientific Method

is a systematic approach to research and experimentation used to explore observations and answer questions by making hypotheses and testing them.

Theory

A system of ideas intended to explain something, often based on general principles independent of the thing to be explained.

Hypothesis

A proposed explanation made on the basis of limited evidence as a starting point for further investigation.