1. You are considering whether to invest in the strategically important project with forecasted cash...
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1. You are considering whether to invest in the strategically important project with forecasted cash flows listed below. Assume that the discount rate is 15% per annum. Choose one of five possibilities listed as the correct decision-making approach to this specific problem:
Year Cash Flow
0 -1,000,000
1 2,300,000
2 -1,320,000
A. Use NPV rule to make your decision; The IRR rule should not be used. B. Use NPV rule to make your decision; The IRR rule can be used equally well. C. Use IRR rule to make your decision; The NPV rule will not be helpful. D. Neither IRR, nor NPV rules are good decision criteria for this problem E. Only Payback Period Rule can be used to make your decision.
2. Klaus Toys just paid its annual dividend of $1.40. The required return is 16 percent and the dividend growth rate is 2 percent. Assume constant dividend growth model. What is the value of this stock five years from now? A. $11.04 B. $11.26 C. $11.67 D. $12.41 E. $12.58
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