You Have Been Hired by the CFO of Lugones Industries

question 89

Multiple Choice

You have been hired by the CFO of Lugones Industries to help estimate its cost of common equity.You have obtained the following data: (1) r_d = yield on the firm's bonds = 7.00% and the risk premium over its own debt cost = 4.00%.(2) r_RF = 5.00%,RP_M = 6.00%,and b = 1.25.(3) D₁ = $1.20,P₀ = $35.00,and g_L = 8.00% (constant) .You were asked to estimate the cost of common 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:

Endoderm

The deepest layer of cells or tissues in an embryo during initial development stages, which eventually forms the lining of both the digestive and respiratory tracts.

Facial Bones

The bones that structure the human face, including the mandible, maxilla, nasal, zygomatic, and others.

Mesoderm

The middle layer of an embryo from which muscles, bones, and circulatory systems develop.

Apical Ectodermal Ridges

Raised areas of ectodermal cells at the tips of developing limbs in embryos, crucial for the regulation of limb formation.