Use the Information for the Question(s)below

question 13

Multiple Choice

Use the information for the question(s) below.
Consider two firms,Chihuahua Corporation and Bernard Industries that are each expected to pay the same $1.5 million dividend every year in perpetuity.Chihuahua Corporation is riskier and has an equity cost of capital of 15%.Bernard Industries is not as shaky as Chihuahua,so Bernard has an equity cost of capital of only 10%.Assume that the market portfolio is not efficient.Both stocks have the same beta and an expected return of 12%.
-The market value for Chihuahua is closest to:

• A)$10.0 million.
• B)$12.5 million.
• C)$12.0 million.
• D)$15 million.

---

Definitions:

Corporate Social Responsibility

The idea that firms have obligations to society beyond their financial obligations to owners and stockholders, and also beyond those prescribed by law or contract.

Production Manager

A professional responsible for overseeing the production process, managing staff, and ensuring the efficient output of high-quality products.

Comfort Zone

A psychological state in which individuals feel familiar, safe, and at ease, often leading to a level of complacency that hinders growth and learning.

Apparel Boutique

A small, specialized retail store that offers a selection of clothing and accessories, often focusing on unique, high-quality, or fashion-forward items.