1. Sentry Manufacturing just paid a dividend $5 per share. The dividend is expected to grow at a constant rate of 7% per year. The price of Sentry Manufacturing's stock today is $32 per share. If Sentry Manufacturing decides to issue new common stock, flotation costs will equal $2.70 per share. Sentry Manufacturing's marginal tax rate is 35%. Based on the above information, the cost of retained earnings (internal equity) is
A) 23.72%.
B) 24.12%.
C) 26.62%.
D) 25.26%
2. James Construction Co. is considering a new inventory system that will cost $950,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $350,000 in year two, $150,000 in year three, and $180,000 in year four. The required rate of return is 8%. What is the payback period of this project?
A) 4.00 years
B) 3.56 years
C) 2.91 years
D) 2.50 years