Unique content needed! Melissa is trying to value ABC Company's stock, which is clearly not growing at all. ABC declared and paid a $5 dividend last year.
The required rate of return for this industry's stock is 11%, but Melissa is unsure about the financial reporting integrity of ABC's finance team. She decides to add an extra 1% "credibility" risk premium to the required return as part of her valuation analysis.
Based on the different reporting by ABC and Melissa, how would you interpret that difference? Defend your answer.