1. What does a P/E ratio of 10 indicate?? a. ?The firm will pay a dividend of $10 per share. b. ?The value of the stock will be 10 times the initial investment at the time of maturity. c. ?An investor would receive 10 percent of the total earnings of the firm, at the time of liquidation. d. ?It would take 10 years for an investor to recover his or her initial investment. e. ?A stock's value will increase by 10 percent every year.
2. You are analyzing a project and have gathered the following data: Year Cash Flow 0 -$175,000 1 $56,400 2 $61,800 3 $72,000 4 $75,000 Cost of capital is 14%. Based on the profitability index of _____ for this project, you should _____ the project, using the new method. 0.1345; accept 0.0859; accept 0.0406; accept -0.0414; reject -0.0785; reject.