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:

Offensive Bodily Contact

An intentional act by one person that creates an apprehension in another of an imminent harmful or offensive contact.

Negligent Torts

Legal claims arising from acts or failures to act where a duty of care is owed and breached, resulting in injury or damage to another party.

Unreasonable Risk

A hazard that exceeds what would be considered acceptable or safe under normal circumstances.

Harm

Physical or psychological injury or damage suffered by an individual, which can be a basis for legal action.