Supposing that: 

• the industry Beta coefficient is 1.5
• the risk free rate is 6%
• The observed market profitability is 12%
• The interest rate on the debt is 6%
• debt financing percentage is 70%

We can affirm that:

I. The capital cost rate is 15% and is applicable to evaluate the profitability of the project based on the project's cash flow.

II. The capital cost rate is 9.7% and is applicable to evaluate the investor's profitability based on the investor's cash flow.

III. The capital cost rate to evaluate the investor's profitability is 6.3% lower due to the lower cost of debt.

 

A) Only I is correct

 b) Only II is correct

 c) I and III are correct

 d) II and III are correct

Answer rating: 100% (QA)

The detailed answer for the above question is provided below The correct answer is a Only I is corre... View the full answer