Firms a and B Are Identical Except for Their Capital

question 54

Multiple Choice

Firms A and B are identical except for their capital structures.Firm A is an all-equity firm while Firm B is levered.Given this,you can assume that Firm B's equity beta will be ______ Firm A's beta and its debt beta will be:

• A)greater than;equal to zero.
• B)greater than;equal to one.
• C)equal to;equal to the market beta.
• D)less than: equal to zero.
• E)less than;equal to one.

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Definitions:

Economies Of Scale

The cost advantage that arises with increased output of a product, as fixed costs are spread over more units of production, reducing the cost per unit.

Diseconomies Of Scale

An increase in average total cost as output rises.

Monopoly

A market structure characterized by a single seller who has exclusive control over a product or service, with no close substitutes.

Natural Monopoly

A market situation where the most cost-efficient production level is achieved by a single firm due to high fixed or start-up costs, making it impractical for new entrants.