1. Franchising, Inc. is considering a major investment. The investment will have an initial cost of $728,000. The cash inflows generated by the project are estimated at $134,000 for the first two years and $127,000 for the following 7 years. What is the internal rate of return? Please show work
a. 10.45 percent
b. 10.54 percent
c. 10.61 percent
d. 10.72 percent
e. 10.86 percent
2. Q Corp has decided to pay out an extra $1 million to shareholder, while keeping investment policy and capital structure constant. Which statement is false?
A. Q Corp must issue $1 million of stock to replace the lost cash.
B. the new shareholders will demand to receive shares worth $1 million.
C. the old shareholders will have reduced their stake in the firm by $1 million.
D. the reduced stake that old shareholders have in the firm will more than offset the benefit of the higher dividend.