HDTV Has Planned on Diversifying into the VR Field

question 113

Multiple Choice

HDTV has planned on diversifying into the VR field. As a result, HDTV's beta would rise to 1.6 from 1.2 and the expected future long-term growth rate in the firm's earnings would increase from 12% to 16%. The expected market return, k_m, is 14%; the risk-free rate, r_f, is 7%; and the current dividend, D_o, is $0.50. Should HDTV go into the VR field?

• A) No, stock price decreases $7.82.
• B) Yes, stock price increases $9.89.
• C) Yes, stock price increases $3.81.
• D) No, stock price decreases $3.78.

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Definitions:

Defense

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402A

A section of the Restatement (Second) of Torts in American law that outlines the manufacturer's liability for harm caused by defective products.

Warranty of Title

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