Lamar Inc., an all-equity firm, is considering the formation of a new division that will increase the assets of the firm by 50 percent. Lamar currently has a required rate of return of 18 percent, U.S. Treasury bonds yield 7 percent, and the market risk premium is 5 percent. If Lamar wants to reduce its required rate of return to 16 percent, what is the maximum beta coefficient the new division could have? *

a. 2.2

b. 1

c. 1.8

d. 1.6

e. None of the above

Matrix Company hired you as a consultant to help them estimate its cost of capital. You have been provided with the following data: D0 = $1.88; P0 = $25.50; and g =6% (constant). Based on the DCF approach, what is the cost of equity from retained earnings? *

a. 13.81%

b. 12.94%

c. 12.3%

d. 12.94%

e. None of the above