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The total market value of the common stock of the Okefenokee Real Estate Company is...

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Finance

The total market value of the common stock of the Okefenokee Real Estate Company is $6 million, and the total value of its debt is $4 million. The treasurer estimates that the beta of the stock is currently 1.5 and that the expected risk premium on the market is 6%. The Treasury bill rate is 4%. Assume for simplicity that Okefenokee debt is risk-free and the company does not pay tax.

What is the discount rate for an expansion of the companys present business?

A. Higher than Company Cost of Capital

B. Same as Company Cost of Capital

C. Lower than Company Cost of Capital

D. Not Knowable

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