A small company struggling to reach profitability just announced a major new government

contract that will validate its technology and generate revenue for the next several years. The
announcement of the contract will

A) cause the stock price to decrease because the government usually pays below market price for
the goods and services it purchases.
B) have no effect on the stock price because the company has not yet paid any dividends.
C) cause the stock price to increase because rcs (the required return) is likely to decrease and g
(the growth rate in future dividends) is likely to increase.
D) cause the stock price to increase because rcs (the required return) is likely to increase.

C