Exhibit 12.2 Use the Information Below for the Following Problem(S)

question 36

Multiple Choice

Exhibit 12.2
Use the Information Below for the Following Problem(S)
Assume that the dividend payout ratio will be 75 percent when the rate on long-term government bonds falls to 8 percent. Since investors are becoming more risk averse, the equity risk premium will rise to 7 percent and investors will require a 15 percent return. The return on equity will be 12 percent.
-Refer to Exhibit 12.2.To what price will the market rise if the earnings expectation is $32.00?

• A) $384.00
• B) $266.56
• C) $213.44
• D) $200.00
• E) $125.44

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Definitions:

Enjoyable

Experiences or activities that provide pleasure, satisfaction, or joy, making them desirable to engage in.

Cognitive Dissonance Theory

The Cognitive Dissonance Theory proposes that people experience discomfort (dissonance) when their beliefs or actions contradict each other, prompting them to alter their attitudes or behaviors to reduce the dissonance.

Festinger and Carlsmith

refers to the researchers Leon Festinger and James M. Carlsmith, known for their classic 1959 study on cognitive dissonance, showing how inconsistencies between attitudes and behaviors lead to psychological discomfort and a drive to resolve it.

Festinger's Report

Refers to works by social psychologist Leon Festinger, notably involving his theory of cognitive dissonance which highlights the discomfort felt at having conflicting beliefs or behaviors.