Exhibit 12.2 Use the Information Below for the Following Problem(S)

question 36

Multiple Choice

Exhibit 12.2
Use the Information Below for the Following Problem(S)
Assume that the dividend payout ratio will be 75 percent when the rate on long-term government bonds falls to 8 percent. Since investors are becoming more risk averse, the equity risk premium will rise to 7 percent and investors will require a 15 percent return. The return on equity will be 12 percent.
-Refer to Exhibit 12.2.To what price will the market rise if the earnings expectation is $32.00?

• A) $384.00
• B) $266.56
• C) $213.44
• D) $200.00
• E) $125.44

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Definitions:

Cost of Production

Refers to the total expenses incurred in the manufacture of goods or services, including raw materials, labor, and overhead costs.

Buyers' Utility

The satisfaction or benefit that consumers receive from purchasing and consuming goods and services.

Firm's Revenues

The total amount of money received by a company from its business activities, before any expenses are subtracted.

MU-to-P Ratio

The ratio of marginal utility (MU) to price (P), used in consumer choice theory to determine the optimal consumption bundle.