DHF Company Has a Beta of 1

question 1

Multiple Choice

DHF Company has a beta of 1.5 and is currently in equilibrium.The required rate of return on the stock is 12.00% versus a required return on an average stock of 10.00%.Now the required return on an average stock increases by 30.0% (not percentage points) .Neither betas nor the risk-free rate change.What would DHF's new required return be?

• A) 14.89%
• B) 15.68%
• C) 16.50%
• D) 17.33%
• E) 18.19%

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Definitions:

Cost of Goods Sold

The total direct costs attributable to the production of goods sold in a company.

Cash Basis

An accounting method that records revenues and expenses when they are actually received or paid, respectively.

Operating Activities

Transactions and events that relate to the core business operations of a company, such as selling products, providing services, and incurring necessary expenses.

Cash Dividend

A financial disbursement by a corporation to its stockholders, typically from earnings distribution.