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Suppose you are collecting information about these two firms: Marrymons and Bathon Industries, and would like to know which firm has higher stock’s expected return to compare with it's required return. Each of them is expected to pay the same $1.5 million dollar dividend every year in perpetuity. Marrymons is riskier and has an equity cost of capital of 15%. Bathon Industries is not as shaky as Marrymons, so Bathon 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%.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92259159

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