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Find what is the firm cost of capital

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Reference no: EM132828460

Problem 1: Bett and Chris were having a debate as regards a share with a beta of 1.25 to increase in returns, you were asked to intervene. You would have most likely told them.

A. 25% more return than the market in up markets
B. 125% more return than the market in down markets
C. None of the answer is correct
D. 25% more return than the market in down markets
E. 125% more return than the market in up markets

Problem 2: The market value of Hayeraft Inc. common stock is $40 million and the market value of its risk free debt is $60 million. The beta of Hayeraft Inc. common stock is 0.8 and the expected market risk premium is 10%. If the Treasury bill rate is 6%, what is the firm's cost of capital? (assume no taxes)

A. 10.8%
B. 14%
C. 9.2%
D. 8.1%
E. None of the answers is correct

Reference no: EM132828460

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