Micromatic Is Considering Expanding into a New Product Area

Multiple Choice

Micromatic is considering expanding into a new product area. Micromatic's current beta is 1.2 and its beta is expected to increase to 1.45 after the expansion. The long-term growth rate of the firm's earnings is expected to increase from 6.5% to 10%. Micromatic's current dividend is $1.70 per share, the current risk-free rate is 9.1%, and the expected market return is 12.9%. Should Micromatic undertake the planned expansion?

A) No, stock price decreases $10.15.
B) Yes, stock price increases $15.27.
C) Yes, stock price increases $0.45.
D) No, stock price decreases $15.27.