The Required Return on Equity for an All-Equity Firm Is

question 65

Multiple Choice

The required return on equity for an all-equity firm is 10.0%. They currently have a beta of one and the risk-free rate is 5% and the market risk premium is 5%. They are considering a change in capital structure to a debt-to-equity ratio of ½ the tax rate is 40%, the pre-tax cost of debt is 8%. Find the beta if this firm changes capital structure.

• A)1.12
• B)1
• C)7.4%
• D)None of the above

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Definitions:

Dial Indicator

A precision measurement tool used to measure small distances or angles with high accuracy, often used in engineering and mechanical settings.

Vernier Calipers

A precision measuring instrument used to measure internal and external dimensions extremely accurately.

Dial Calipers

Precision measuring tools that use a calibrated dial to measure distances or thicknesses with high accuracy.

Rotors

Discs attached to the wheels of a vehicle that the brake pads press against to slow or stop the car, as part of the disc brake system.