Your Firm Is Planning to Invest in a New Power

question 104

Multiple Choice

Your firm is planning to invest in a new power generation system.Galt Industries is an all-equity firm that specializes in this business.Suppose Galt's equity beta is 0.75,the risk-free rate is 3%,and the market risk premium is 6%.If your firm's project is all-equity financed,then your estimate of your cost of capital is closest to:

• A)5.25%.
• B)6.00%.
• C)6.75%.
• D)7.50%.

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Definitions:

Least Square Regression

A statistical method used to determine the line of best fit by minimizing the squared differences between observed values and the values predicted by the line.

Independent Variable

A variable in an experiment or model that is manipulated or changed to assess its effects on a dependent variable.

Scattergraph

A graphical representation used in cost accounting to show the relationship between a cost (dependent variable) and its driver (independent variable).

Contribution Margin Ratio

The proportion of sales revenue that remains after variable costs are subtracted, represented as a percentage of total sales.