The CFO of Lenox Industries Hired You as a Consultant

question 86

Multiple Choice

The CFO of Lenox Industries hired you as a consultant to help estimate its cost of capital. You have obtained the following data: (1) rd = yield on the firm's bonds = 7.00% and the risk premium over its own debt cost = 4.00%. (2) rRF = 5.00%, RPM = 6.00%, and b = 1.25. (3) D1 = $1.20, P0 = $35.00, and g = 8.00% (constant) . You were asked to estimate the cost of equity based on the three most commonly used methods and then to indicate the difference between the highest and lowest of these estimates. What is that difference?

• A) 1.13%
• B) 1.50%
• C) 1.88%
• D) 2.34%
• E) 2.58%

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Definitions:

Mathematical Average

Another term for mean, which is calculated by adding up all the numbers in a set of data and dividing by the count of numbers.

Mode

The datum that is most recurrent in a given data set.

Set Of Data

A collection of related information or numerical values that are analyzed or used in statistics and research.

Mode

The most frequently occurring value within a data set.