1. The single-factor APT model that resembles the market model uses _________ as the single factor.
A) arbitrage fees
B) GNP
C) the inflation rate
D) the market risk premium
E) the risk-free return
2. Solar Tech is currently an all equity firm that has 350,000 shares of stock outstanding with a market price of $20 a share. The current cost of equity is 15 percent and the tax rate is 40 percent. The firm is considering adding $1 million of debt with a coupon rate of 8 percent to its capital structure. The debt will be sold at par value. What is the levered value of the equity?
A. $6.512 million
B. $5.209 million
C. $5.312 million
D. $6.4 million
E. $6.708 million