Suppose the risk-free rate is 2% and the market return is 7%. SP Oil Co. currently has a steady business operating a refinery and has a beta of 0.6. Next year they will pay an annual dividend of $2 per share after which dividends will grow at 1% per year. They have an opportunity to develop a petroleum-based technology product that would allow them to triple their dividend growth rate; however, this new product line carries significantly more systematic risk and would increase their overall beta to 1.0. 

As a shareholder, do you want them to pursue this opportunity? Why?

Answer rating: 100% (QA)

As a shareholder the decision to pursue the opportunity to develop a petroleumbased technology produ... View the full answer