Use the Information for the Question(s)below

question 13

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 market value for Chihuahua is closest to:

• A)$10.0 million.
• B)$12.5 million.
• C)$12.0 million.
• D)$15 million.

---

Definitions:

Geraldine Ferraro

The first female vice presidential candidate representing a major American political party, running in 1984 on the Democratic ticket with Walter Mondale.

Major-Party Presidential Ticket

The combination of a presidential candidate and vice-presidential candidate representing one of the two major political parties in the United States during an election.

Welfare State

A system in which the government undertakes to protect the health and well-being of its citizens, especially those in financial or social need, by means of grants, pensions, and other benefits.

Trickle-Down Economics

An economic theory suggesting that benefits given to the wealthy or businesses will eventually trickle down to everyone in the form of investments and jobs.