Micromatic Is Considering Expanding into a New Product Area

question 117

Multiple Choice

Micromatic is considering expanding into a new product area.Micromatic's current beta is 1.2 and its beta is expected to increase to 1.45 after the expansion.The long-term growth rate of the firm's earnings is expected to increase from 6.5 percent to 10 percent.Micromatic's current dividend is $1.70 per share, the current risk-free rate is 9.1 percent, and the expected market return is 12.9 percent.Should Micromatic undertake the planned expansion?

• A)No, stock price decreases $10.15
• B)Yes, stock price increases $15.27
• C)Yes, stock price increases $0.45
• D)No, stock price decreases $15.27

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Definitions:

Control Coils

Electromagnetic coils used in relay and contactor units to create a magnetic field that actuates the device.

Magnetic Flux

A measure of the quantity of magnetism, considering the strength and the extent of a magnetic field.

Indicator Lamps

Visual devices that show the status of an operation or condition, often using light to indicate on/off states or warnings.

Circuit Output

The result or product of the operation of a circuit, typically represented in terms of voltage or current.