Use the Information for the Question(s)below

question 66

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 alpha for Bernard is closest to:

• A)+5%.
• B)-2%.
• C)-3%.
• D)+2%.

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Definitions:

National Pipe Thread

A U.S. standard for tapered threads used on threaded pipes and pipe fittings, designed to create a tight seal.

Inside Diameter

The distance across the innermost part of a cylinder or tube, often measured to ensure the correct sizing for fittings or materials passing through.

Cast Iron Pipe

A type of durable pipe made from iron that has been cast in a mold, often used for water or sewage systems.

ABS Pipe

Acrylonitrile Butadiene Styrene pipe, a type of plastic piping used for waste water and vent lines due to its high resistance to impact and durability.