Harold Owns a Cranberry Bog in Which He Grows Cranberries

question 64

Multiple Choice

Harold owns a cranberry bog in which he grows cranberries. Harold's farm is a competitive, profit­maximizing firm. As such, Harold much decide

• A) (i) only
• B) (ii) and (iii) only
• C) (i) and (iv) only
• D) (i), (ii), (iii), and (iv)

Understand that the cost of equity is an estimate and not directly observable in the financial markets.

Know the variables affecting the security market line (SML) approach to estimating expected return on a risky asset.

Differentiate between the after-tax cost of debt and the yield to maturity concerning bond prices and interest rates.

Understand how the SML approach assumes constancy in the reward-to-risk ratio and its implications for a firm's cost of equity.