1. Alpha Moose Transporters is considering investing in a one-year project that requires an initial investment of $500,000. To do so, it will have to issue new common stock and will incur a flotation cost of 2.00%. At the end of the year, the project is expected to produce a cash inflow of $595,000. The rate of return that Alpha Moose expects to earn on its project (net of its flotation costs) is ________ (rounded to two decimal places).
1. Alpha Moose Transporters is considering investing in a one-year project that requires an initial investment of $500,000. To do so, it will have to issue new common stock and will incur a flotation cost of 2.00%. At the end of the year, the project is expected to produce a cash inflow of $595,000. The rate of return that Alpha Moose expects to earn on its project (net of its flotation costs) is ________ (rounded to two decimal places).
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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1. Alpha Moose Transporters is considering investing in a one-year project that requires an initial investment of $500,000. To do so, it will have to issue new common stock and will incur a flotation cost of 2.00%. At the end of the year, the project is expected to produce a cash inflow of $595,000. The rate of return that Alpha Moose expects to earn on its project (net of its flotation costs) is ________ (rounded to two decimal places).
2. Sunny Day Manufacturing Company has a current stock price of $22.35 per share, and is expected to pay a per-share dividend of $1.36 at the end of the year. The company’s earnings’ and dividends’ growth rate are expected to grow at the constant rate of 9.40% into the foreseeable future. If Sunny Day expects to incur flotation costs of 5.00% of the value of its newly-raised equity funds, then the flotation-adjusted (net) cost of its new common stock (rounded to two decimal places) should be _______ .
3. Alpha Moose Transporters Co.’s addition to earnings for this year is expected to be $857,000. Its target capital structure consists of 40% debt, 5% preferred, and 55% equity. Determine Alpha Moose Transporters’s retained earnings breakpoint:
$1,558,182
$1,791,909
$1,947,728
$1,714,000
Transcribed Image Text:Alpha Moose Transporters is considering investing in a one-year project that requires an initial investment of $500,000. To do so, it will have to issue
new common stock and will incur a flotation cost of 2.00%. At the end of the year, the project is expected to produce a cash inflow of $595,000. The
rate of return that Alpha Moose expects to earn on its project (net of its flotation costs) is 16.67% (rounded to two decimal places).
16.67%
Sunny Day Manufacturing Company has a current stock price of $22.35 per share, and is
the year. The company's earnings' and dividends' growth rate are expected to grow at the 14.17%
Sunny Day expects to incur flotation costs of 5.00% of the value of its newly-raised equity
common stock (rounded to two decimal places) should be
10.84%
pay a per-share dividend of $1.36 at the end of
ate of 9.40% into the foreseeable future. If
n the flotation-adjusted (net) cost of its new
13.34%
Alpha Moose Transporters Co.'s addition to earnings for this year is expected to be $857,000. Its target capital structure consists of 40% debt, 5%
Transcribed Image Text:Sunny Day Manufacturing Company has a current stock price of $22.35 per share, and is expected to pay a per-share dividend of $1.36 at the end
the year. The company's earnings' and dividends' growth rate are expected to grow at the constant rate of 9.40% into the foreseeable future. If
Sunny Day expects to incur flotation costs of 5.00% of the value of its newly-raised equity funds, then the flotation-adjusted (net) cost of its new
common stock (rounded to two decimal places) should be
Alpha Moose Transporters Co.'s addition to earnings for th
preferred, and 55% equity. Determine Alpha Moose Trans
$1,558,182
$1,791,909
15.81%
15.49%
13.44%
12.65%
xpected to be $857,000. Its target capital structure consists of 40% debt, 5%
tained earnings breakpoint:
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