The common stock for the Bestsold Corporation sells for $58. If a new issue is sold, the
Question:
The common stock for the Bestsold Corporation sells for $58. If a new issue is sold, the flotation costs are estimated to be 8 percent. The company pays 50 percent of its earnings in dividends, and a $4 dividend was recently paid. Earnings per share 5 years ago were $5. Earnings are expected to continue to grow at the same annual rate in the future as during the past 5 years. The firm’s marginal tax rate is 21 percent. Calculate the cost of
(a) Internal common equity
(b) External common equity.
Step by Step Answer:
If the firm pays out 50 percent of its earnings in dividends its recent earnings must have been 8 4 ...View the full answer
Foundations Of Finance
ISBN: 9780135160619
10th Edition
Authors: Arthur J. Keown, John H. Martin, J. William Petty
Related Video
Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company. Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions. For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.
Students also viewed these Business questions
-
The common stock for the Kingsford Corporation sells for $58 a share. Last year the firm paid a $4 dividend, which is expected to continue to grow 4 percent per year into the indefinite future. If...
-
The common stock for the Bestsold Corporation sells for $58 a share. Last year the firm paid a $4 dividend, which is expected to continue to grow 4 percent per year into the indefinite future. If...
-
Danika Kaffe, CFO of Kendrick Enterprises, is evaluating a 10-year, 8 percent loan with gross proceeds of $5,350,000. The interest payments on the loan will be made annually. Flotation costs are...
-
Marquis Company uses a weighted-average perpetual inventorysystem. August 2, 22 units were purchased at $3 per unit. August 18, 27 units were purchased at $5 per unit. August 29, 24 units were sold....
-
Phone calls arrive at a rate of = 0.2/h. What is the probability that there are five or more calls in 9 h? Find and sketch the Poisson distribution associated with the given rate . and duration t,...
-
Suppose you had two small boxes, each containing 1.0 g of protons. (a) If one were placed on the moon by an astronaut and the other were left on the earth, and if they were connected by a very light...
-
Four sewer pipes of \(0.5-\mathrm{m}\) diameter join to form one pipe of diameter \(D\). If the Manning coefficient, \(n\), and the slope are the same for all of the pipes, and if each pipe flows...
-
An Iowa state savings bond can be converted to $100 at maturity 6 years from purchase. If the state bonds are to be competitive with U.S. savings bonds, which pay 8% annual interest (compounded...
-
Explain the role of environmental risk assessments in hazard analysis. How do these assessments address the broader implications of industrial hazards on the surrounding environment and public health...
-
JLChem Corporation, a chemical manufacturing firm with changing investment opportunities, is considering a major change in dividend policy. It currently has 50 million shares outstanding and pays an...
-
The Zephyr Corporation is contemplating a new investment to be financed 33 percent from debt. The firm could sell new $1,000 par value bonds at a net price of $945. The coupon interest rate is 12...
-
Compute the costs for the following sources of financing: a. A $1,000 par value bond with a market price of $970 and a coupon interest rate of 10 percent. Flotation costs for a new issue would be...
-
Define the cash-flow statement and explain what it does.
-
What is Re for the following categories? tax rate bond maturity RPM beta Rf 20.00% 10 5% 1.3 4.70%
-
Do you think that financial institutions should take time/ place more of emphasis on making it clear to homeowners about fixtures vs. personal property in the event of a future foreclosure when they...
-
Suppose you hate typing and you hate filing. Your boss tells you can divide your 8 hour day anyway you like between these two activities, as long as you work the entire 8 hours. (a) Draw your budget...
-
At the break-even point, a firm's profits are O greater than zero. O less than zero. O equal to zero. O Not enough information is given to determine.
-
What insights have emerged from recent studies elucidating the role of metabolite-sensing nuclear receptors, such as PPARs and FXRs, in mediating metabolic homeostasis and their potential as...
-
The bookkeeper of Triad Co. gathered the following data from individual employee earnings records and daily time cards. Your task is to complete a payroll register on August 8. Assume the following:...
-
What types of questions can be answered by analyzing financial statements?
-
Fijisawa, Inc., is considering a major expansion of its product line and has estimated the following free cash flows associated with such an expansion. The initial outlay associated with the...
-
What is the present value of the following future amounts? A- $800 to be received 10 years from now discounted back to the present at 10 percent B- $300 to be received 5 years from now discounted...
-
Calculate the value of a preferred stock that pays a dividend of $6 per share and your required rate of return is 12 percent.
-
java code ReadFile Create-a linked list from an input file (input.txt) that contains an even number of first names. The number of items in the file is unknown. Split Create-a split function that...
-
Complete a method named findValue which accepts an IntArray and an Int value and returns whether the array contains the passed value. Your method should not modify the passed array. However, you...
-
Write program Sum.java that just prints the strings that it is given at the command line, one per line. If nothing is given at the command line, print "No arguments". Modify your program (Make a copy...
Study smarter with the SolutionInn App