A levered firm has only 2 assets on its balance sheet with the below market values and CAPM betas. The risk-free rate is 3% pa, and the market risk premium is 5% pa. Assume that the CAPM is correct and all assets are fairly priced.

Balance Sheet Market Values and Betas
Balance sheet item	Market value ($m)	Beta
Cash asset	0.5	0
Truck assets	0.5	2
Loan liabilities	0.25	0.1
Equity funding	?	?

Next year, the firm then pays $0.5m cash for trucks that are actually worth $0.7m on the market. Assume that the beta and yield on the existing loan liabilities are unchanged compared to before. All figures are given to 6 decimal places. Which of the following statements isNOTcorrect? This event led to a:

Question 8Select one:

a.

Good outcome for the company since the NPV of buying the trucks was $0.2m.

b.

$0.2m increase in the market value of equity to $0.95m.

c.

$0.7m increase in the market value of trucks to $1.2m.

d.

$0.5m decrease in the market value of cash to zero.

e.

$0.70 increase in the stock price to $0.95 assuming that there are 1 million shares.