eng120-Spring2007-mt2-Zhang-soln

# eng120-Spring2007-mt2-Zhang-soln - E-120 Principles of...

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E-120: Principles of Engineering Economics Midterm Exam II Apr 04, 2007 Name: ___________________________________________ (please print) SID: ______________________ Clearly state all the formula and mathematical expressions that are needed to solve the problems. No credit will be given to numerical answers without the proper setup. Answer each of the following questions in the space provided. If you need more space to show major computations you performed to obtain your answer for a particular problem, use the back of the preceding page. Present your work in an organized and neat fashion. Good Luck! Problem 1 (25) 2 (20) 3 (25) 4 (30) Total (100) Score 1

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Part 1: Concepts. (25 points, 5 each) (Only one correct answer) C 1.1) In a constant dividend growth model, the required rate of return is known (larger than the growth rate). Which of the following statements is/are TRUE ? I. The price of the stock will grow at the same rate as the dividends. II. If all others are the same, then an increase in the dividend growth rate will decrease the stock price. III. If all others are the same, then an increase in the required rate of return will decrease the stock price. A. I only B. I and II C. I and III D. II and III E. I, II and III E 1.2) If a project has a positive NPV, based on which of the following criteria, you MUST ACCEPT this project?
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