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:

Latent Learning

A form of learning that occurs without any obvious reinforcement of the behavior or associations that are learned, becoming apparent only when there is an incentive to demonstrate it.

Reinforced Behaviors

Actions that are encouraged and increased in frequency due to the application of a positive or negative stimulus following the behavior.

Internal Colonialism

Involves one race or ethnic group subjugating another in the same country. It prevents assimilation by segregating the subordinate group in terms of jobs, housing, and social contacts.

Expulsion

Is the forcible removal of a population from a territory claimed by another population.