Last month, Springfield Power Co announced that shareholders of record on this coming Friday will receive a dividend of $2.75 per share. (Assume that the dividend will also be paid on Friday)
After this Friday, the next dividend is expected in one year's time. Dividends are expected to be paid annually in perpetuity and are expected to grow at a rate of 5%. Shareholders of Springfield Power Co require a 12.5% return on equity. What is the stock price of Springfield Power on Tuesday? (Preceding the Friday Day of Record.)
A) $32.00
B) $37.66
C) $41.25
D) $43.91
E) $46.25
C
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a. true b. false
The NPV of an investment made today is $10,000. If postponed for one year, the NPV at that time will increase by $1,000. Which of the following is correct if the opportunity cost of the investment is 12 percent?
A) postpone; the NPV will be larger. B) postpone; the NPV increases by a positive amount. C) invest now; always accept positive NPV projects. D) invest now; NPV does not grow at a sufficient rate.