Use the Information for the Question(s) Below

question 23

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 a cost of capital of 15%. Bernard Industries is not as shaky as Chihuahua, so Bernard has a cost of capital of only 10%. Assume that the market portfolio is not efficient. Both stocks have the same beta and the CAPM would assign them both an expected return of 12%.
-The market value for Chihuahua Corporation is closest to

• A) $10.0 million.
• B) $12.5 million.
• C) $12.0 million.
• D) $15.0 million.

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Definitions:

Primary Emotions

Fundamental feelings inherent in humans, such as joy, sadness, anger, and fear, that are immediate responses to stimuli.

Stress Response

The body's way of reacting to a challenge or demand, involving various physical and psychological responses.

Sympathetic Nervous System

Part of the autonomic nervous system that prepares the body for physical activity by accelerating the heart rate, constricting blood vessels, and raising blood pressure, among other things.

Oxytocin

A hormone produced in the brain that plays significant roles in childbirth, breastfeeding, and emotional bonding.