Bouchard and Company Hired You as a Consultant to Help

question 84

Multiple Choice

Bouchard and Company hired you as a consultant to help estimate its cost of capital. You have obtained the following data: D0 = $0.85; P0 = $22.00; and g = 6.00% (constant) . The CEO thinks, however, that the stock price is temporarily depressed, and that it will soon rise to $40.00. Based on the DCF approach, by how much would the cost of equity from retained earnings change if the stock price changes as the CEO expects?

• A) -1.49%
• B) -1.66%
• C) -1.84%
• D) -2.03%
• E) -2.23%

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Definitions:

Accepting Benefits

The act of receiving advantages, possibly under a contract, and particularly in a manner that implies acknowledgment or endorsement.

Writing

The act or process of forming visible letters or characters specifically for communication or documentation.

Secret Commission

A payment made to an individual for facilitating a transaction without the knowledge of all parties involved.

Entitled

Having a right or claim to something, often by law or through agreements.