You Have Been Hired by the CFO of Lugones Industries

question 74

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) rd = yield on the firm's bonds = 7.00% and the risk premium over its own debt cost = 4.00%. (2) rRF = 5.00%, RPM = 6.00%, and b = 1.25. (3) D1 = $1.20, P0 = $35.00, and gL = 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%

---

Definitions:

Lost Profits

The potential revenue that a business did not earn due to an interruption, disruption, or another adverse event.

Resale

The act of selling an asset or item that was previously purchased, often occurring in secondary markets or through distributor networks.

Breaches

Incidents where laws, contracts, or promises are violated, leading to legal consequences.

Compensatory Damages

Financial reparations awarded to a plaintiff to compensate for loss, injury, or harm suffered due to the defendant's actions.