1. What impact does asymmetric information have the optimal level of leverage? In your answer, be sure to descibe the implications of adverse selection and the lemons principle for equityinssuance, as well as the empircal implications.

2. A stock is expected to pay a dividend of $2.25 at the end of the year (i.e., D1 = $2.25), and it should continue to grow at a constant rate of 10% a year. If its required return is 12%, what is the stock's expected price 5 years from today? Round your answer to two decimal places. Do not round your intermediate calculations.