True or False: The following statement accurately describes how firms make decisions related to issuing new common stock. Taking flotation costs into account will reduce the cost of new common stock. False: Flotation costs are additional costs associated with raising new common stock. True: Taking flotation costs into account will reduce the cost of new common stock, because you will multiply the cost of new common stock by 1 minus the flotation cost-similar to how the after-tax cost of debt is calculated Alpha Moose Transporters is considering investing in a one-year project that requires an initial investment of $475,000. To do so, it will have 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 $550,000. The rate of return that Alpha Moose expects to earn on its project (net of its flotation costs) is (rounded to two decimal places) Sunny Day Manufacturing Company has a current stock price of $22.35 per share, and is expected to pay a per-share dividend of $2.03 at the end of next 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 6.50% 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 this year is expected to be $420,000. Its target capital structure consists of 40% debt, 5 % preferred, and 55% equity. Determine Alpha Moose Transporters's retained earnings breakpoint: $725,454 $763,636 $954,545 $840,000
True or False: The following statement accurately describes how firms make decisions related to issuing new common stock. Taking flotation costs into account will reduce the cost of new common stock. False: Flotation costs are additional costs associated with raising new common stock. True: Taking flotation costs into account will reduce the cost of new common stock, because you will multiply the cost of new common stock by 1 minus the flotation cost-similar to how the after-tax cost of debt is calculated Alpha Moose Transporters is considering investing in a one-year project that requires an initial investment of $475,000. To do so, it will have 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 $550,000. The rate of return that Alpha Moose expects to earn on its project (net of its flotation costs) is (rounded to two decimal places) Sunny Day Manufacturing Company has a current stock price of $22.35 per share, and is expected to pay a per-share dividend of $2.03 at the end of next 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 6.50% 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 this year is expected to be $420,000. Its target capital structure consists of 40% debt, 5 % preferred, and 55% equity. Determine Alpha Moose Transporters's retained earnings breakpoint: $725,454 $763,636 $954,545 $840,000
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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Transcribed Image Text:True or False: The following statement accurately describes how firms make decisions related to issuing new common
stock.
Taking flotation costs into account will reduce the cost of new common stock.
False: Flotation costs are additional costs associated with raising new common stock.
True: Taking flotation costs into account will reduce the cost of new common stock, because you will multiply
the cost of new common stock by 1 minus the flotation cost-similar to how the after-tax cost of debt is
calculated
Alpha Moose Transporters is considering investing in a one-year project that requires an initial investment of
$475,000. To do so, it will have 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 $550,000. The rate of return that Alpha Moose expects to
earn on its project (net of its flotation costs) is
(rounded to two decimal places)
Sunny Day Manufacturing Company has a current stock price of $22.35 per share, and is expected to pay a per-share
dividend of $2.03 at the end of next 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 6.50% 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 this year is expected to be $420,000. Its target capital
structure consists of 40% debt, 5 % preferred, and 55% equity. Determine Alpha Moose Transporters's retained
earnings breakpoint:
$725,454
$763,636
$954,545
$840,000
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