HDTV Has Planned on Diversifying into the Dual-VCR Field

question 39

Multiple Choice

HDTV has planned on diversifying into the dual-VCR 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, km, is 14%;the risk free rate, rf, is 7%;and the current dividend, Do, is $0.50.Should HDTV go into the dual-VCR field?

• A)No-stock price decrease $7.82
• B)Yes-stock price increase $9.89
• C)Yes-stock price increase $3.81
• D)No-stock price decrease $3.78

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