Use the Following Information to Answer the Question(s)below

question 39

Multiple Choice

Use the following information to answer the question(s) below.
Luther Industries has 25 million shares outstanding trading at $18 per share.In addition,Luther has $150 million in outstanding debt.Suppose Luther's equity cost of capital is 13%,its debt cost of capital is 7%,and the corporate tax rate is 40%.
-Which of the following statements is FALSE?

• A)Many practitioners analyze other financial characteristics of a firm,when they forecast betas.
• B)U.S.Treasuries are never subject to interest rate risk unless we select a maturity equal to our investment horizon.
• C)If a firm where to change industries,using its historical beta would be inferior to using the beta of other firms in the new industry.
• D)When using historical returns to forecast future betas,we must be mindful of changes in the environment that might cause the future to differ from the past.

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