A Firm Has a Return on Equity of 12

question 101

Multiple Choice

A firm has a return on equity of 12.4 percent according to the dividend growth model and a return of 18.7 percent according to the capital asset pricing model.The market rate of return is 13.5 percent.What rate should the firm use as the cost of equity when computing the firm's weighted average cost of capital (WACC) ?

• A)12.4 percent because it is lower than 18.7 percent
• B)18.7 percent because it is higher than 12.4 percent
• C)The arithmetic average of 12.4 percent and 18.7 percent
• D)The arithmetic average of 12.4 percent, 13.5 percent, and 18.7 percent
• E)13.5 percent

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Definitions:

You-viewpoint

A communication technique that focuses on the interests, needs, or benefits of the audience or recipient, emphasizing "you" rather than "I" or "we."

We-viewpoint

A communication strategy focusing on collaborative language to emphasize unity and collective goals.

Second-person Pronouns

Pronouns that are used to address the listener or reader directly, commonly "you," "your," and "yours."

Blame

The act of holding someone responsible for a mistake or wrong action, often leading to criticism or punishment.