Your Firm Is Planning to Invest in a New Electrostatic

question 76

Multiple Choice

Your firm is planning to invest in a new electrostatic power generation system.Electrostat Inc is a firm that specializes in this business.Electrostat has a stock price of $25 per share with 16 million shares outstanding.Electrostat's equity beta is 1.18.It also has $220 million in debt outstanding with a debt beta of 0.08.If the risk-free rate is 3%,and the market risk premium is 6%,then your estimate of your cost of capital for electrostatic power generators is closest to:

• A)7.50%.
• B)7.75%.
• C)9.50%.
• D)10.10%.

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Definitions:

Continuous Budgeting

A process of constantly updating a budget for a set period in the future to reflect changes as they happen.

Safety Stock

Additional inventory held by a company to prevent stockouts, usually due to uncertainties in supply and demand.

Master Budget

A comprehensive financial plan that combines all of the individual budgets related to sales, costs, expenses, assets, and liabilities.

Merchandise Purchases Budget

A financial plan detailing the amount of goods that a retail or wholesale company plans to buy over a certain period to meet anticipated sales.