SBouchard and Company Hired You as a Consultant to Help

question 36

Multiple Choice

S.Bouchard and Company hired you as a consultant to help estimate its cost of capital.You have obtained the following data: D₀ = $0.85;P₀ = $22.00;and g = 6.00% (constant) .The CEO thinks,however,that the stock price is temporarily depressed,and that it will soon rise to $37.00.Based on the DCF approach,by how much would the cost of equity from retained earnings change if the stock price changes as the CEO expects? Do not round your intermediate calculations.

• A) -1.66%
• B) -1.39%
• C) -1.79%
• D) -1.73%
• E) -1.81%

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Definitions:

J.R. Simplot

An American entrepreneur and businessman known for founding the J.R. Simplot Company, a major agricultural supplier specializing in a variety of products, including potatoes for French fries.

Hierarchy

An arrangement or institution where individuals or entities are positioned hierarchically, based on their status or power.

Low-Cost Strategy

A competitive strategy focusing on producing goods or services at the lowest possible cost to attract price-sensitive customers.

Differentiation Strategy

A business approach where a company offers unique products or services to stand out from competitors in the market.