A Firm with a Beta of 1

question 72

Multiple Choice

A firm with a beta of 1.22 just paid its annual dividend of $5.64 a share. The dividends increase at a rate of 2% annually. The risk-free rate is 3.5%, the market rate of return is 12.4%, and the dividend discount rate is 11.6%. What is the best estimate of the firm's cost of equity if the firm's stock currently sells for $60 a share using an average of methods?

• A) 12.97%
• B) 14.33%
• C) 11.60%
• D)13.38%

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Definitions:

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A law enacted in 2001 to strengthen national security by allowing law enforcement agencies greater ability to search, gather, and exchange information.

Wiretap

The monitoring and recording of telephone and Internet communications, often by law enforcement agencies, with the purpose of gathering information or evidence.

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The use of severe pain or suffering, inflicted upon a person's body, often for purposes of punishment, interrogation, or coercion.

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The act of revoking the right to vote from individuals or groups, often used as a means of political and racial exclusion.