Hocking Manufacturing Company Has a Beta of 0

question 99

Multiple Choice

Hocking Manufacturing Company has a beta of 0.65,while Levine Industries has a beta of 1.40.The required return on the stock market is 11.00%,and the risk-free rate is 4.25%.What is the difference between Hocking's and Levine's required rates of return? (Hint: First find the market risk premium,then find the required returns on the stocks.)

• A)4.34%
• B)4.57%
• C)4.81%
• D)5.06%

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Definitions:

Corporate Tax Rates

The percentage of corporate profits taken as tax by the government.

After-Tax Cost

The net cost of an investment or transaction after considering the effects of taxes on its overall expenses or returns.

WACC

Weighted Average Cost of Capital, a calculation of a firm’s cost of capital in which each category of capital is proportionately weighted.

Debt-Equity Ratio

A measure of a company's financial leverage, calculated by dividing its total liabilities by stockholders' equity, indicating the proportion of debt used in financing its assets.