1. The argument that interstate banking would allow banks to grow and more fully achieve a reduction in operating costs per unit of output as output increases is based on:

a. economies of scale.

b. financial leverage.

c. diseconomies of scale

d. capital adequacy theory.

2. Pluto Inc. is growing quickly. Dividends are expected to grow at 30% for the next three years, after which growth and dividends should fall to a constant 3%. The required return is 11% and the company just paid a $2.00 annual dividend. What is the current share price?

a) 26.10

b) 49.65

c) 58.41

d) 65.47

e) 98.75