1. A stock is selling for $40. The next projected dividend will be $4 per share. If the rate of return earned on reinvested funds is always 15% and the company always reinvests 40% of earnings in the firm, what is the discount rate?

2.

If you insulate your office for $23,000, you will save $2,300 a year in heating expenses. These savings will last forever.

Calculate the profitability index for this investment assuming an 8% opportunity cost of capital.