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:

Social Competence

The ability to interact effectively with others, including understanding and managing social situations and relationships.

Genetic

Relating to genes or heredity, the biological process whereby genetic factors are transmitted from one generation to the next.

Temperament Characteristics

refers to the fundamental aspects of an individual's personality, such as mood, activity level, and emotional reactivity, that are believed to be biologically based.

Crying

A vocal expression of distress, discomfort, or need, often used by infants as their primary means of communication.