HDTV Has Planned on Diversifying into the Dual-VCR Field

Multiple Choice

HDTV has planned on diversifying into the dual-VCR field. As a result, HDTV's beta would rise to 1.6 from 1.2 and the expected future long-term growth rate in the firm's earnings would increase from 12% to 16%. The expected market return, km, is 14%; the risk free rate, rf, is 7%; and the current dividend, D_o, is $0.50. Should HDTV go into the dual-VCR field?

A) No-stock price decrease $7.82
B) Yes-stock price increase $9.89
C) Yes-stock price increase $3.81
D) No-stock price decrease $3.78