The single-factor apt model that resembles the market model, Financial Management

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The single-factor apt model that resembles the market model

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

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