Question
1. Upsilon Utilities Inc. expects a constant growth rate of 2% in its dividend payments. If the company expects to pay a dividend of $3
1.
Upsilon Utilities Inc. expects a constant growth rate of 2% in its dividend payments. If the company expects to pay a dividend of $3 per share in one years time, and its current share price is $35, what is the required rate of return on its shares?
Select one:
a. 8.33%
b. 10.33%
c. 10.50%
d. 10.57%
e. 14.00%
2.
Mr. Gallagher is considering replacing his five-year-old car with a new one. The new car will cost $30,000, taking into consideration the trade-in value of the old car. The new car will save Mr. Gallagher $5,000 per year in terms of gasoline, repairs, and maintenance. Mr. Gallagher plans to keep this new car for five years. At the end of five years, the car can be sold for $8,000. What is the internal rate of return on the new car?
Select one:
a. 1.40%
b. 2.80%
c. 5.00%
d. 8.14%
e. 9.43%
3.
Which of the following is a disadvantage of the internal rate of return criterion?
Select one:
a. It is not a true rate of return.
b. It uses an arbitrary benchmark cutoff rate.
c. It ignores time value of money, cash flows, and market values.
d. It cannot be used to rank independent projects.
e. It may lead to incorrect decisions when comparing mutually exclusive investments.
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