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A firm currently has a beta of 1.3, the risk free rate is an annual rate of 6%, and the market return is an annual rate of 12%. The firm is expected…

A firm currently has a beta of 1.3, the risk free rate is an annual rate of 6%, and the market return is an annual rate of 12%. The firm is expected to pay dividends of $5.20 for the coming period. An imminent regulatory change is expected to change risk, resulting in the firm’s beta jumping to 1.6. Assuming zero dividend growth in the future, the new equilibrium price of the ordinary shares is expected to be: (and why?)

A. $37.68 

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B. $43.33 

C. $33.33 

13.M1

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