DelMara Deli is a small, privately owned restaurant chain, where the owner has all of her wealth invested in the business. The unlevered beta for publicly traded restaurant chains is 0.90 and average R-squared of the market regressions for these companies is 25%. If DelMara has no debt, what is the cost of equity for DelMaras owner? (The risk free rate is 3% and the equity risk premium is 6%) Select one: a. None of the above b. 24.6% c. 13.8% d. 18.0% e. 8.4%

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One of the key assumptions in any market-based objective is that the market is efficient. If markets are efficient, which of the following reactions should you expect to unexpected (large) investment announcements by the firm (investments in new projects/R&D)? Select one: a. The market price should go up only if the big investments will increase the value of the company. b. The market price should always go down when firms make big investment announcements. c. The market price should always go up when firms make big investment announcements. d. The market price should go up only if the big investments will decrease earnings in the next year. e. The market price should not change. f. The market price should go up only if the big investments will increase earnings in the next year.

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