Suppose That Tan Lines' Common Shares Sell for $20 Per

question 65

Multiple Choice

Suppose that Tan Lines' common shares sell for $20 per share, are expected to set their next annual dividend at $1.00 per share, and that all future dividends are expected to grow by 5 percent per year, indefinitely. If Tan Lines faces a flotation cost of 10 percent on new equity issues, what will be the flotation-adjusted cost of equity?

• A) 5.06 percent
• B) 5.50 percent
• C) 10.00 percent
• D) 10.56 percent

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Definitions:

Investor

An individual or entity that allocates capital with the expectation of receiving financial returns.

Long-Term Investments-AFS

These are long-term investments in 'Available for Sale Securities' that a company has, which can be sold in the future.

Debt Investments

Financial assets involving the loan of money from an investor to a borrower, often in the form of bonds or loans.

Available-For-Sale Securities

Financial assets that are not classified as held-to-maturity or trading securities, and can be sold in the market.