Circle the correct answer to each of the following multiple choice questions regarding key topics in chapter 10 (worth 5 points each): 1) CHOOSING THE RIGHT DISCOUNT RATE A firm currently finances operations with 60% equity and 40% debt. They are considering an investment in an asset similar to its existing assets. What would be an appropriate discount rate to evaluate this potential project? a) Cost of equity b) Cost of debt c) Weighted average cost of capital (WACC) d) Risk-free rate 2) COST OF EQUITY hot of 1 8. The risk free rate is 5% and the expected re b) Cost of debt c) Weighted average cost of capital (WACC) d) Risk-free rate 2) COST OF EQUITY Bavarian Sausage has a beta of 1.8. The risk free rate is 5% and the expected return on the market is 17%. What is the company's cost of equity? a) 17.0% b) 26.6% c) 21.6% d) 13.5% 21 cos OFFLITY acitive to b) 26.6% c) 21.6% d) 13.5% 3) COST OF EQUITY A firm's products are not a necessity, and the company's sales are more sensitive to macroeconomic swings, such as an economic recession. We therefore would expect the company to have: a) a higher beta and a higher cost of equity. b) a higher beta and a lower cost of equity. c) a lower beta and a higher cost of equity. d) a lower beta and a lower cost of equity