A Very Large Firm Has a Debt Beta of Zero

question 23

Multiple Choice

A very large firm has a debt beta of zero. If the cost of equity is 11%,and the risk-free rate is 5%,the cost of debt is:

• A) 5%.
• B) 6%.
• C) 11%.
• D) 15%.
• E) It is impossible to tell without the expected market return.

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Definitions:

Magnuson-Moss Warranty Act

A federal law in the United States that governs warranties on consumer products to ensure protection and rights for consumers.

Full Warranty

A comprehensive guarantee that a manufacturer or seller makes regarding the condition of its product, including a promise to repair or replace defective items.

Consumer Goods

Products that are purchased by individuals for personal or household use, rather than by businesses or for industrial purposes.

Oral Express Warranties

Verbal promises made by a seller to a buyer about the nature or quality of the product being sold.