Each of the six firms in the$$ table, LOADING... $,$ is expected to pay the listed dividend payment every year in perpetuity.

a$.$ Using the cost of capital in the$$ table, calculate the market value of each firm.

b$.$ Rank the three S firms by their market values and look at how their cost of capital is ordered. What would be the expected return for a$$ self$-$financing portfolio that went long on the firm with the largest market value and shorted the firm with the lowest market$$ value? Repeat using the B firms.

c$.$ Rank all six firms by their market values. How does this ranking order the cost of$$ capital? What would be the expected return for a$$ self$-$financing portfolio that went long on the firm with the largest market value and shorted the firm with the lowest market$$ value?

d$.$ Repeat part $($c$)$ but rank the firms by the dividend yield instead of the market value. What can you conclude about the dividend yield ranking compared to the market value$$ ranking?Question Viewer

Data table

$($Click on the following icon $$ in order to copy its contents into a spreadsheet.$)$

$\backslash$table$[[$Firm$,$Dividend $($$ million$),$Cost of Capital $(\%/$year$)],[$S$1,10\mathrm{.}0,8\mathrm{.}0],[$S$2,10\mathrm{.}0,12\mathrm{.}0],[$S$3,10\mathrm{.}0,14\mathrm{.}0],[$B$1,100\mathrm{.}0,8\mathrm{.}0],[$B$2,100\mathrm{.}0,12\mathrm{.}0],[$B$3,100\mathrm{.}0,14\mathrm{.}0]]$

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