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problem 1: Suppose the RiskFree Rate is 8%, the Expected Return this year on the S&P 500 stock market index is 13%, and the stock of Joe's Junkyard has a Beta of 1.4. Given these conditions, what is the required rate of return for Joe's stock?

a. 8%

b. 13%

c. 15%

d. 21%

problem 2: To raise money to finance the capital budget projects you've been evaluating, your firm plans to borrow money at an interest rate of 14%, before-tax. If your firm's effective tax rate is 40%, what is the aftertax cost in percent of the new loan?

a. 15.96%

b. 14.40%

c. 14.00%

d. 8.40%

e. 5.60%

Basic Finance, Finance

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