Miller Sisters Has an Overall Beta of 0

question 22

Multiple Choice

Miller Sisters has an overall beta of 0.79 and a cost of equity of 11.2 percent for the firm overall.The firm is 100 percent financed with common stock.Division A within the firm has an estimated beta of 1.08 and is the riskiest of all of the firm's operations.What is an appropriate cost of capital for division A if the market risk premium is 9.5 percent?

• A)13.12 percent
• B)13.96 percent
• C)14.63 percent
• D)15.77 percent
• E)16.01 percent

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Definitions:

Symmetry

The quality of being made up of exactly similar parts facing each other or around an axis; often associated with harmony and balance in design or form.

Mere Exposure Effect

Repeated exposure to an object results in greater attraction to that object.

Attractive

Qualities or features that make someone or something appealing or desirable.

Reinforcement Model

A theory suggesting that behaviors are learned and repeated based on the rewards or punishments that follow them.