In the world with perfect capital market and no taxes, Firm A is unlevered and has an equity beta equal to 2. Firm B is identical to Firm A except that it has a debt to equity ratio equal to one. Assuming B can borrow at 5% risk-free rate and that Firm’s cost of capital is 10%, What are the equity beta and the cost of equity of firm B? A. Firm B has Beta equal to 2, and a cost of equity equal to 0.1 B. Firm B has Beta equal to 4, and a cost of equity equal to 0.15 C. Firm B has Beta equal to 3, and a cost of equity equal to 0.125 D. Firm B has Beta equal to 1, and a cost of equity equal to 0.15
In the world with perfect capital market and no taxes, Firm A is unlevered and has an equity beta equal to 2. Firm B is identical to Firm A except that it has a debt to equity ratio equal to one. Assuming B can borrow at 5% risk-free rate and that Firm’s cost of capital is 10%, What are the equity beta and the cost of equity of firm B? A. Firm B has Beta equal to 2, and a cost of equity equal to 0.1 B. Firm B has Beta equal to 4, and a cost of equity equal to 0.15 C. Firm B has Beta equal to 3, and a cost of equity equal to 0.125 D. Firm B has Beta equal to 1, and a cost of equity equal to 0.15
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing
Section: Chapter Questions
Problem 24E: A company had WACC (weighted average cost of capital) equal to 8. % If the company pays off mortgage...
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In the world with perfect capital market and no taxes, Firm A is unlevered and has an equity beta equal to 2. Firm B is identical to Firm A except that it has a debt to equity ratio equal to one. Assuming B can borrow at 5% risk-free rate and that Firm’s cost of capital is 10%, What are the equity beta and the
A. Firm B has Beta equal to 2, and a cost of equity equal to 0.1
B. Firm B has Beta equal to 4, and a cost of equity equal to 0.15
C. Firm B has Beta equal to 3, and a cost of equity equal to 0.125
D. Firm B has Beta equal to 1, and a cost of equity equal to 0.15
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