MULTIPLE CHOICE

1.Digital Systems, Inc. just paid a dividend ofD₀= $3.25per share on its stock.The dividends are expected to grow at a constant rate ofg = 3 percentper year indefinitely.Investors require a return ofK_C/S= 13 percenton the company's stock.What is theDividend YieldandCapital Gainfor an investment in Digital Systems Stock?

A. Dividend Yield = 16% and Capital Gain = 3%

B. Dividend Yield = 10% and Capital Gain = 3%

C. Dividend Yield = 16% and Capital Gain = 10%

D. Dividend Yield = 6.5% and Capital Gain = 6.5%

2.What is thePayback Periodfor the following set of cash flows?(Assume k = 10%)

Initial Investment(I) = $1,150

CF₁= $330

CF₂= $363

CF₃= $399.30

CF₄= $439.23

A. 3.5 Years

B. 4 Years

C. 3 Years

D. 3.13 Years