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Question
A small company struggling to reach profitability just announced a major new government contract that will validate its technology and generate revenue for the next several years. The announcement of the contract willA) cause the stock price to increase because rcs (the required return) is likely to increase.
B) cause the stock price to decrease because the government usually pays below market price for the goods and services it purchases.
C) cause the stock price to increase because rcs (the required return) is likely to decrease and g (the growth rate in future dividends) is likely to increase.
D) have no effect on the stock price because the company has not yet paid any dividends.
Answer
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