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Exam 27: Techniques for Measuring Beta Risk

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Exam 25: Calculating Beta Coefficients8 Questionsadd course
Exam 26: Using the Capm to Estimate the Risk-Adjusted Cost of Capital5 Questionsadd course
Exam 27: Techniques for Measuring Beta Risk3 Questionsadd course
Exam 28: Degree of Leverage23 Questionsadd course
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Northern Conglomerate has two divisions,Division A and Division B.Northern looks at competing pure-play firms to estimate the betas of each of the two divisions.After this analysis,Northern concludes that Division A has a beta of 0.8 and Division B has a beta of 1.5.The two divisions are the same size.The risk-free rate is 5% and the market risk premium is 6%.Assume that Northern is 100% equity financed.What is the overall composite WACC for Northern Conglomerate?

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C

Interstate Transport has a target capital structure of 50% debt and 50% common equity.The firm is considering a new independent project that has a return of 13% and is not related to transportation.However,a pure-play proxy firm has been identified that has a beta of 1.38.Both firms have a marginal tax rate of 40%,and Interstate's before-tax cost of debt is 12%.The risk-free rate is 10% and the market risk premium is 5%.The firm should:

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B

Which of the following methods involves calculating an average beta for comparable firms and using that beta to determine a project's beta?

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B

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