As Financial Manager of Material Supplies Inc

Multiple Choice

As financial manager of Material Supplies Inc., you have recently participated in an executive committee decision to enter into the plastics business. Much to your surprise, the price of the firm's common stock subsequently declined from $40 per share to $30 per share. While there have been several changes in financial markets during this period, you are anxious to deter¬mine how the market perceives the relevant risk of your firm. Assume that the market is in equilibrium. From the following data you find that the beta value associated with your firm has changed from an old beta of to a new beta of _. (1) (2) (3) (4) The next dividend, D1, was expected to be $2 per share, assuming the "old" 5 percent growth rate.

A) 2.00; 1.50
B) 1.50; 3.00
C) 2.00; 3.17
D) 1.67; 2.00
E) 1.50; 1.67