Use the Information for the Question(s)below

question 66

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 alpha for Bernard is closest to:

• A)+5%.
• B)-2%.
• C)-3%.
• D)+2%.

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Definitions:

National Law

The body of laws and regulations that are enacted by a country’s legislative body and applied within its borders.

Supremacy Clause

The provision in Article VI of the U.S. Constitution that declares the Constitution, laws, and treaties of the United States "the supreme Law of the Land."

Article VI

A section of the United States Constitution that establishes the Constitution, federal statutes, and treaties as the supreme law of the land, overriding state laws.

Marginal Revenue Product

The additional revenue generated from employing one more unit of a resource.