Table Rock, an All-Equity Firm, Currently Has a Beta of 1.25

Multiple Choice

Table Rock, an all-equity firm, currently has a beta of 1.25, and rRF = 7 percent and rM = 14 percent.Suppose the firm sells 10 percent of its assets (beta = 1.25) and purchases the same proportion of new assets with a beta of 1.1.What will be the firm's new overall required rate of return, and what rate of return must the new assets produce in order to leave the share price unchanged?

A) 15.645%; 15.645%
B) 15.75%; 14.7%
C) 15.645%; 14.7%
D) 15.75%; 15.645%
E) 14.75%; 15.75%