Use the following information to answer questions 1 and 2 RTR stock, of which you own 500 shares, will pay a $2 per share dividend one year from today. Two years from now RTR will close its doors and stockholders will receive a liquidating dividend of $17.5375 per share. The required rate of return on RTR stock is 15 percent.

1. If the firm was to immediate pay the $2 dividend, what the price of the stock be?

(a) $13.26

(b) $11.26

(c) $15.26

(d) $9.26

(e) $14.26

2. Transaction cost issues are important when considering doing an IPO. What do we mean by “transaction costs”?

(a) costs of paying executives

(b) costs of paying employees

(c) costs of paying investment banks

(d) costs of paying commercial banks

(e) none of the above