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1. XYZ Corporation maintains a constant debt-to-total capital ratio (D/D+E) of 60%. The cost of debt is 8%. The firm's fundamental business risk is very

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1. XYZ Corporation maintains a constant debt-to-total capital ratio (D/D+E) of 60%. The cost of debt is 8%. The firm's fundamental business risk is very similar to the risk of the assets of UVS Corporation. The "twin" firm UVS maintains a debt-to-total capital ratio (D/D+E) of 50%, has a zero debt beta and its equity holders require a rate of return of 15%. The risk-free rate r in the economy is 6%. The expected return on the market portfolio FM is 12%. Which of the following statements is true? A) The required rate of return, rg, of XYZ lies between 13% and 14%. B) The required rate of return, IE, of XYZ lies between 14% and 15%. C) The required rate of return, re, of XYZ lies between 15% and 16%. D) The required rate of return, re, of XYZ lies between 16% and 17%

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