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:

Cues

Signals or stimuli that trigger a specific response or action, often used in learning and behavioral contexts.

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The circumstances or settings surrounding a particular event, situation, or concept that help to give it meaning.

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A technique in psychology where exposure to one stimulus influences the response to a subsequent stimulus, without conscious guidance or intention.

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A serialized television drama focusing on domestic situations and often characterized by melodrama.