Question 15 (2 points)

Suppose Indigo Books and Music has a beta of 0.8. The yield on a 3-month T-bill is 4% and the yield on a 10-year government bond is 6%. The market risk premium is 5.5%, but the stock market return in the previous years was 15%. What is the estimated cost of common equity using the CAPM?

Question 15 options:

	10.47 percent
	10.40 percent
	11.35 percent
	10.88 percent

Question 16 (1 point)

Financial risk is the additional risk placed on the common shareholders as a result of the decision to finance with common share.

Question 16 options:

	True
	False

Question 17 (1 point)

Modigliani and Miller theory argues that in a world without taxes, both the value of a firm and its WACC would be unaffected by its capital structure.

Question 17 options:

	True
	False