The CFO of Lenox Industries Hired You as a Consultant

question 90

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 = 1.65.(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) 3.90%
• B) 4.29%
• C) 3.74%
• D) 4.60%
• E) 4.21%

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Definitions:

Defense Mechanism

Psychological strategies used unconsciously to protect oneself from anxiety arising from unacceptable thoughts or feelings.

Repression

A defense mechanism whereby distressing thoughts, memories, or desires are kept out of conscious awareness.

Developmental Stage

A period in an individual's life characterized by specific milestones in physical, emotional, or cognitive development.

Fixation

In Freud’s theory, a failure to move forward from one stage to another as expected.