Mark the correct answer

Select one:

a. Beta depends on the type of industry, operating leverage and financial leverage

b. Beta gives an indication of unsystematic risk

c. The cost of debt does not depend on the credit rating of a company

d. Unsystematic risk cannot be diversified away

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Chengdu Motors is a new entrant in the auto industry in India. It specializes in small, customized cars, designed for middle-class Indian customers. Assume that the risk-free rate is 6.5%, and the market risk premium is 7.5%. As an analyst, you are working with the following data on a set of comparable firms. Chengdu Motors has a target Debt to Equity capitalization of 1. The beta of debt for Chengdu Motors is assumed to be negligible. The beta of debt for comparable firms is also assumed to be negligible. The tax rate can be taken as 33%. Assumptions: All five firms have comparable size

Company Name	Levered Equity Betas	Debt/Equity Capitalization
Faw Car Co. Ltd.	0.5	0
Dong Feng Automobile	-ve0.5	0.5
Ah Jianghuai Auto Co.	2.1	0.8
Chang Auto Co.	3	2

What is the estimated cost of equity for Chengdu Motors? (which range)

Select one:

a. 1%-5%

b. 10.00%-13%

c. 14%-17%

d. 18%-25%