Use the Information for the Question(s)below

question 54

Multiple Choice

Use the information for the question(s) below.
Consider two firms,Chihuahua Corporation and Bernard Industries that are each expected to pay the same $1.5 million dividend every year in perpetuity.Chihuahua Corporation is riskier and has an equity cost of capital of 15%.Bernard Industries is not as shaky as Chihuahua,so Bernard has an equity cost of capital of only 10%.Assume that the market portfolio is not efficient.Both stocks have the same beta and an expected return of 12%.
-The market value for Bernard is closest to:

• A)$12.0 million.
• B)$10 million.
• C)$15.0 million.
• D)$12.5 million.

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Definitions:

Accommodation

In psychology, the process of adjusting one's cognitive structures to incorporate new information.

Schema

A cognitive framework or concept that helps organize and interpret information, allowing individuals to make sense of their experiences and the world around them.

Jean Piaget

A Swiss psychologist known for his pioneering work in child development and his theory of cognitive development.

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The physical and emotional comfort that an individual receives from touching or being in close physical contact with others.