ADK Industries Common Shares Sell for $40 Per Share

question 7

Multiple Choice

ADK Industries common shares sell for $40 per share. ADK expects to set their next annual dividend at $1.75 per share. If ADK expects future dividends to grow at 7 percent per year, indefinitely, the current risk-free rate is 4 percent, the expected rate on the market is 11 percent, and the stock has a beta of 1.2, what should be the best estimate of the firm's cost of equity?

• A)11.89 percent
• B)11.38 percent
• C)12.40 percent
• D)12.71 percent

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Definitions:

Indirect Approach

A communication strategy where the main point or request is presented after providing background information or context, often used to soften the message or persuade.

Audience Resistance

The reluctance or opposition from an audience to accept or agree with the message being communicated.

Circular Reasoning

A logical fallacy in which the conclusion is supported by premises that assume the truth of the conclusion instead of proving it.

Faulty Analogies

Comparisons made between two things that are dissimilar in significant ways, leading to misleading or erroneous conclusions.