Stand Still Co

question 55

Multiple Choice

Stand Still Co. has been earning $1 per share on 400,000 shares, and paying out all of the earnings. The discount rate for a company of this risk is 10%. The company has an investment opportunity with a cost of $1,500,000 and expects to earn $230,000 after taxes, but they must reinvest 35% of these earnings to continue to maintain the expansion in earnings. What is the value of the company without the investment and what is the value with the investment?

• A) $200,000; $1,500,000
• B) $4,000,000; $6,600,000
• C) $4,000,000; $4,610,390
• D) $400,000; $15,000,000

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Definitions:

Communal Relationships

Interpersonal connections where individuals emphasize mutual care and concern for each other's welfare.

Exchange Relationships

Social interactions where benefits are given with the expectation of receiving something of equal value in return.

More Mature

Having a higher level of emotional or intellectual development, often characterized by better judgment and self-control.

Exchange Relationships

Social relationships based on reciprocal and equitable exchanges of resources or benefits between parties.