White Lion Homebuilders is considering investing in a one-year project that new common stock and will incur a flotation cost of 2.00%. At the end of th rate of return that White Lion expects to earn on its project (net of its flota

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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White Lion Homebuilders 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 White Lion expects to earn on its project (net of its flotation costs) is
(rounded to two decimal places).
Alpha Moose Transporters has a current stock price of $33.35 per share, and is expected to pay a per-share dividend of $2.45 at the end of the year.
The company's earnings and dividends' growth rate are expected to grow at the constant rate of 8.70% into the foreseeable future. If Alpha Moose
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
White Lion Homebuilders Co.'s addition to earnings for this year is expected to be $420,000. Its target capital structure consists of 35% debt, 5%
preferred, and 60% equity. Determine White Lion Homebuilders's retained earnings breakpoint:
$630,000
$805,000
O $770,000
O $700,000
Transcribed Image Text:White Lion Homebuilders 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 White Lion expects to earn on its project (net of its flotation costs) is (rounded to two decimal places). Alpha Moose Transporters has a current stock price of $33.35 per share, and is expected to pay a per-share dividend of $2.45 at the end of the year. The company's earnings and dividends' growth rate are expected to grow at the constant rate of 8.70% into the foreseeable future. If Alpha Moose 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 White Lion Homebuilders Co.'s addition to earnings for this year is expected to be $420,000. Its target capital structure consists of 35% debt, 5% preferred, and 60% equity. Determine White Lion Homebuilders's retained earnings breakpoint: $630,000 $805,000 O $770,000 O $700,000
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