1.An investor buys 100 shares of a $40 stock that pays an annual cash dividend of $2 a share (a 5 percent dividend yield) and signs up for the dividend reinvestment plan. a) If neither the dividend nor the price changes, how many shares will the investor have at the end of ten years? How much will the position in the stock be worth? b) If the price of the stock rises by 6 percent annually but the dividend remains at $2 a share, how many shares are purchased each year for the next ten years? How much is the total position worth at the end of ten years? c) If the price of the stock rises by 6 percent annually but the dividend rises by only 3 percent annually, how many shares are purchased each year for the next ten years? How much is the total position worth at the end of ten years? Since dividend plans credit fractional shares, use three decimal places in parts (b) and (c).

8. Two firms have sales of $1 million each. Other financial information is as follows: EBIT $150,000 $150,000 Interest expense $20,000 $75,000 Income tax $50,000 $30,000 Equity $300,000 $100,000 What are the operating profit margins and the net profit margins for these two firms? What is their return on equity? Why are they different? If total assets are the same for each firm, what can you conclude about their respective uses of debt financing?