Gutierrez & Ravenna Company has just paid a dividend of D0 = $2.00. Due to a new product, Gutierrez & Ravenna expects its short-run growth rate in dividends to equal 20 percent annually for the next 3 years. After this time, growth is expected to return to the long-run constant rate of 5 percent. The required rate of return on the companys equity is 12%. What should the dividend yield (D1/P0) be today? [Hint: Find the price (P0) today prior to computing the dividend yield (D1/P0)]

a. 5.48%

b. 5.05%

c. 4.57%

d. 6.06%

e. None of the above

Please choose the MOST correct alternative.

a. If the discount rate used for a project with normal cash flows is equal to its IRR, then the PI = 1.

b. The NPV of a project is equal to zero when the discount rate used is the IRR.

c. For a project with normal cash flows, the PI will always be greater than 1 if the NPV is positive.

d. The decision regarding acceptance / rejection of a project should be based on the NPV criterion.

e. All of the above are correct.