Answer:
Expected rate of return will be 24%
So option (b) will be correct option
Explanation:
We have given dividend in next year will be $2
So dividend $
Current stock price = $50
And it is given that in next year stock price is $60
So growth rate = 20%
We have to find the expected return after 12 month, that is after 1 year
We know that current price is given by
= 24%
So expected rate of return will be 24%
So option (B) will be correct option
Answer:
The second project should be chosen. Because the present value of the second project is greater than that of the first project.
Explanation:
The project that should be chosen can be determined by comparing the present value of both projects.
Present value is the cash flows from a project discounted at the discount rate.
Present value can be found using a financial calculator;
For project 1,
Cash flow each year from year one to six is $52,000
Discount rate = 15%
Present value =$196,793.10
For project 2,
Cash flow each year from year one to eight is $48,000
Discount rate = 15%
Present value =$215,391.43
The second project would be chosen because its present value is greater than that of the first project.
I hope my answer helps you
