Use the following information to answer the question(s)below. The risk-free rate of interest is 3% and the market risk premium is 5%.
-The cost of capital for the oil refining division is closest to:
A)6.5%.
B)7.0%.
C)8.5%.
D)10.0%.

Question

Use the following information to answer the question(s)below.  The risk-free rate of interest is 3% and the market risk premium is 5%.
-The cost of capital for the oil refining division is closest to:
A)6.5%. 
B)7.0%. 
C)8.5%. 
D)10.0%.

Quizplus · Accepted Answer

The cost of capital for the oil refining division is typically higher due to the risks associated with the industry, such as fluctuating oil prices and regulatory challenges, making 8.5% a reasonable estimate.

Use the Following Information to Answer the Question(s)below