1. Suppose that a shareholder has just paid $4 per share for Go Go Company shares. The shares will pay a $0.20 per share dividend in the upcoming year, and this dividend is expected to grow at an annual rate of 8% indefinitely. What is the annual required rate of this shareholder?
a. The annual required rate of this shareholder is 13%.
b. The annual required rate of this shareholder is 5%.
c. The annual required rate of this shareholder is 8%.
d. None of the other answers are true.
2. Which of the following is not considered as the advantage of payback period?
a. Biased against long-term projects, such as new projects and research and development.
b. Adjusts for uncertainty of later cash flows.
c. Biased toward liquidity.
d. Easy to understand.