Arizona Rock,an All-Equity Firm,currently Has a Beta of 1

question 177

Multiple Choice

Arizona Rock,an all-equity firm,currently has a beta of 1.25,and r_RF = 7 percent and r_M = 14 percent.Suppose the firm sells 10 percent of its assets (beta = 1.25) and purchases the same proportion of new assets with a beta of 1.1.What will be the firm's new overall required rate of return,and what rate of return must the new assets produce in order to leave the stock price unchanged?

• A) 15.645%;15.645%
• B) 15.75%;14.7%
• C) 15.645%;14.7%
• D) 15.75%;15.645%
• E) 14.75%;15.75%

---

Definitions:

Profit Responsibility

An obligation to manage activities and resources in such a way as to achieve financial profitability for an organization.

ISO 14000 Initiative

A series of environmental management standards developed by the International Organization for Standardization aimed at helping organizations minimize their environmental impact.

Kyoto Protocol

An international treaty that commits state parties to reduce greenhouse gas emissions, based on the premise that global warming exists and human-made CO2 emissions have caused it.

Green World Initiative

An environmental endeavor aimed at promoting sustainable and eco-friendly practices.