Question
16 4 points Save An A firm has common stock with a market price of $154 per share and an expected dividend of $5.61 per
16 4 points Save An A firm has common stock with a market price of $154 per share and an expected dividend of $5.61 per share at the end of the coming year. A new issue of stock is expected to be sold for $152, with the $2 per share representing the underpricing necessary in the competitive capital market. Flotation costs are expected to total $1 per share. The dividends paid on the outstanding stock over the past five years are as follows: Year Dividend 1 $4.00 2 4.16 3 4.33 4 4.50 5 4.68 The cost of this new issue of common stock is 5.8 percent a. Ob. 10.8 percent C. 7.7 percent d. 12.8 percent Question 17 5 4 points Save Ans You are considering two independent projects with the following cash flows. The required return for both projects is 17 percent. Given this information, which of the following statements is correct? Year Project A 0 -$125,000 Project B -$135,000 1 46,000 50,000 2 79,000 30,000 3 51,000 110,000 a. b. C. Od. e. You should accept both projects based on both the NPV and IRR decision rules. You should accept Project B and reject project A based on their respective NPVs. You should accept Project A and reject Project B based on their respective NPVs. You should reject both projects based on both the NPV and IRR decision rules. You should accept Project B and reject Project A based on their respective IRRs. Question 18 4 points Save Answer A firm with a cost of capital of 13 percent is evaluating three capital projects. The internal rates of return are as follows: Project Internal Rate of Return 1 14% 2 15 3 11 The firm should a. accept Project 3, and reject Projects 1 and 2 Ob. accept Project 2, and reject Projects 1 and 3 c. accept Project 1, and reject Projects 2 and 3 d. accept Project 1 and 2, and reject Project 3
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