ENGIN 120 Study Guide - Midterm Guide: Payback Period, Engineering Economics, Net Present Value
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1. 1) (5%) a bond with a face value of ,000 has annual coupon payments of and was issued 7 years ago. The bond currently sells for ,000 and has 8 years remaining to maturity. This bond"s must be 10%. yield to maturity. In the constant dividend growth model with a constant discount rate (greater then the dividend growth rate) forever, the stock price will grow at the same rate as the dividends. All else held the same, an increase in the dividend growth rate will increase a stock"s market value. All else held the same, an increase in the required return on a stock will increase its market value. Answer: b or c. you get full credit if you answered either b or c. firm value will increase. firm value will not only increase, but be maximally increased. 1. 4) (5%) if financial managers only invest in projects that have a profitability index greater than one,
