The Common Stock of Industrial Technologies Has an Expected Return

question 18

Multiple Choice

The common stock of Industrial Technologies has an expected return of 15.6 percent. The market return is 11.2 percent and the risk-free return is 4.6 percent. What is the stock's beta?

• A) 0.42
• B) 1.00
• C) 1.32
• D) 1.42
• E) 1.67

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Definitions:

Cost of Capital

Represents the rate of return that a company must earn on its investment projects to maintain its market value and attract funds.

Capital Rationing

The process of selecting profitable projects under the constraint of limited available investment funds.

Internal Rate of Return

A financial metric used to evaluate the profitability of an investment, calculated as the discount rate that makes the net present value of all cash flows from the investment equal to zero.

Hurdle Rate

Hurdle Rate is the minimum acceptable return on investment or project that a business requires before it considers it viable or proceeds with it.