S) Bouchard and Company Hired You as a Consultant to Help

question 60

Multiple Choice

S) 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:

Economics Quiz

A set of questions designed to test knowledge and understanding of economic principles and theories.

Marginal Benefit

The additional satisfaction or utility gained from consuming or using one more unit of a good or service.

Marginal Cost

The additional cost incurred by producing one more unit of a product or service, highlighting how costs vary with production levels.

Utility

A measure of satisfaction or pleasure derived from consuming goods or services.