The CFO of Lenox Industries Hired You as a Consultant

question 2

Multiple Choice

The CFO of Lenox Industries hired you as a consultant to help estimate its cost of capital.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 = 1.50.(3) D₁ = $1.20,P₀ = $35.00,and g = 8.00% (constant) .You were asked to estimate the cost of equity 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) 3.00%
• B) 3.54%
• C) 2.61%
• D) 3.72%
• E) 2.67%

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Definitions:

Glucose

The form of sugar that circulates in the blood and provides the major source of energy for body tissues. When its level is low, we feel hunger.

Amygdala

A section of the brain involved in experiencing emotions, particularly fear and pleasure.

Memory Trace

A concept in psychology and neurology referring to the physical and biochemical changes in the brain associated with storing information, essentially the footprint that a memory leaves on the brain.

Memory-Forming Areas

Regions in the brain, such as the hippocampus and amygdala, involved in the processing and storage of information as memories.