JKL Corporation,a Company Devoted Primarily to Paper Products,is Estimating the Cost

question 28

Multiple Choice

JKL Corporation,a company devoted primarily to paper products,is estimating the cost of equity appropriate for a vegetable processing plant it is planning to build.JKL Corp.has an equity beta of 1.0 and a debt ratio (D/(D+E) ) of 0.3.A comparable (vegetable processing) firm has an equity beta of 0.8 and a debt ratio of 0.2.Assume a risk-free rate of 5% and a market risk premium of 8%.What cost of equity should JKL use in this situation?

• A) 7.7%
• B) 11.4%
• C) 12.3%
• D) 13.0%

Learn about inventory costs and opportunity costs associated with holding inventory.

Understand the impact of credit policies on the cash cycle and operating cycle of a business.

Comprehend the terms of sale and the effects of credit policy decisions on a firm’s financials, including net present value calculations.

Understand sophisticated credit evaluation techniques like Multiple Discriminant Analysis (MDA) and their application.

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