You Have Been Hired by the CFO of Lugones Industries

question 89

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

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Definitions:

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The concentration of the hormone testosterone in the body, which plays key roles in male sexual development, muscle and bone mass, and behavior.

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A birth control method involving the injection of a synthetic hormone to prevent pregnancy by stopping ovulation and thickening cervical mucus.

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Parts of the body involved in sexual reproduction and function, typically including the external sex organs.

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