ETHICS PROBLEM Melissa is trying to value the stock of Generic Utlity, Inc, which is clearly not growing at all. Generic declared and paid a $$4$ dividend last year. The required retum for utility stocks is $13\%,$ but Melissa is unsure about the financial reporting integrity of Generic's finance team. She decides to add an extra $2\%$ "credibility" risk premium to the required return as part of her valuation analysis.

a$.$ What is the value of Generic's stock, assuming that the financials are trustworthy?

b$.$ What is the value of Generic's stock, assuming that Melissa includes the extra $2\%$ "credibility" risk premium?

c$.$ What is the difference between the values found in parts a and b$,$ and how might one interpret that difference?

a$.$ The expected value of Generic's stock, assuming that the required rate of retum for utily stocks is applicable to Generic Utility, Inc, is $ $($Round to the nearest cent.$)$

b$.$ The expected value of Generic's stock, assuming that Melissa includes the extra $2\%$ "credibility" risk premium, is $$.($Round to the nearest cent.$)$

c$.$ Comparing the findings in parts a and b$,$ the amount the expected value of the stock, if Melissa includes a crediblity premium in her calculations, will be less than when assuming the required rate of retum for utilities is $$.($Round to the nearest cent.$)$

Based on your answer above, judge whether the following statement is true or false? $($Select the best answer below$)$

Lack of integrity may hurt stock prices because of the "credibility premium.

False

True