Bertin Bicycles Has a Beta of 0

question 103

Multiple Choice

Bertin Bicycles has a beta of 0.88 and an expected dividend growth rate of 4.00% per year.The T-bill rate is 4.00%,and the T-bond rate is 5.25%.The annual return on the stock market during the past 4 years was 10.25%.Investors expect the average annual future return on the market to be 11.50%.Using the SML,what is Bertin's required rate of return?

• A)10.48%
• B)10.75%
• C)11.02%
• D)11.29%

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Definitions:

Deferred Tax Liabilities

Future tax payments a company owes but has not yet paid, often arising from timing differences between accounting practices and tax laws.

Deferred Tax Assets

Deferred tax assets are items on the balance sheet that reduce future tax obligations because of overpayment or advance payment of taxes or future tax benefits due to allowable temporary differences.

Book Income Tax Expense

The amount of income tax expense that is reported on the financial statements, which may differ from the actual tax paid due to differences between accounting and tax rules.

Temporary Difference

A difference between the carrying amount of an asset or liability in the balance sheet and its tax base, which will result in taxable or deductible amounts in the future.