Use the Information for the Question(s) Below

question 68

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 Bernard Industries is closest to

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

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Definitions:

Cults

Groups often characterized by a shared religious, philosophical, or spiritual belief system, typically led by a charismatic leader and not conforming to societal norms.

Obedience

The act of following the directives of an authority figure, which can be influenced by varying factors including cultural expectations and personal morality.

Milgram Studies

Groundbreaking experiments by Stanley Milgram focusing on obedience to authority, revealing that individuals can perform acts against their personal conscience under the influence of an authoritative figure.

French And Raven

A theory identifying five bases of power: legitimate, reward, coercive, expert, and referent.