As the Winner of a Contest, You Are Now CFO

question 77

Multiple Choice

As the winner of a contest, you are now CFO for the day for Maguire Inc.and your day's job involves raising capital for expansion.Maguire's common stock currently sells for $45.00 per share, the company expects to earn $2.75 per share during the current year, its expected payout ratio is 70%, and its expected constant growth rate is 6.00%.New stock can be sold to the public at the current price, but a flotation cost of 8% would be incurred.By how much would the cost of new stock exceed the cost of common from reinvested earnings?

• A) 0.09%
• B) 0.19%
• C) 0.37%
• D) 0.56%
• E) 0.84%

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Definitions:

Cash Conversion Cycle

The length of time between the firm’s actual cash expenditures on productive resources (materials and labour) and its own cash receipts from the sale of products (i.e., the length of time between paying for labour and materials and collecting on receivables). Thus, the cash conversion cycle equals the length of time the firm has funds tied up in current assets.

Accounts Payable

Accounts Payable is the amount of money owed by a company to its creditors for goods and services purchased on credit.

Financial Cost

Expenses associated with borrowing funds or purchasing on credit, including interest expenses, fees, and other charges.

Balance

This term refers to the total amount of money in a financial account, the difference between credits and debits in an account, or the equilibrium between opposing forces or actions.