The market value of Company A's common stock is $25 million, and the market value of its risk-free debt is $10 million. The beta of the company's common stock is 1.3, and the market expected return is 10 per cent. If the Treasury bill rate is 4 per cent, what is the company's cost of capital? (Assume no taxes.) O a. 9.6 per cent O b. 15.8 per cent c. None of these options O d. 11.8 per cent
The market value of Company A's common stock is $25 million, and the market value of its risk-free debt is $10 million. The beta of the company's common stock is 1.3, and the market expected return is 10 per cent. If the Treasury bill rate is 4 per cent, what is the company's cost of capital? (Assume no taxes.) O a. 9.6 per cent O b. 15.8 per cent c. None of these options O d. 11.8 per cent
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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which option is correct
Transcribed Image Text:The market value of Company A's common stock is $25 million, and the market value of its risk-free debt is
$10 million. The beta of the company's common stock is 1.3, and the market expected return is 10 per
cent. If the Treasury bill rate is 4 per cent, what is the company's cost of capital? (Assume no taxes.)
O a. 9.6 per cent
O b. 15.8 per cent
V C. None of these options
O d. 11.8 per cent
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