Martha’ s Interiors has a current beta of 1.2. The market risk premium

Martha’ s Interiors has a current beta of 1.2. The market risk premium is 6 percent and the risk-free rate of return is 4 percent.

By how much will the cost of equity increase if the company completes an acquisition such that their company beta rises to 1.4?
A) 0.12 percent
B) 0.24 percent
C) 1.20 percent
D) 2.40 percent
E) 2.47 percent

ANSWER

C