J. Ross and Sons Inc

question 38

Multiple Choice

J. Ross and Sons Inc.
J. Ross and Sons Inc. has a target capital structure that calls for 40 percent debt, 10 percent preferred stock, and 50 percent common equity. The firm's current after-tax cost of debt is 6 percent, and it can sell as much debt as it wishes at this rate. The firm's preferred stock currently sells for $90 a share and pays a dividend of $10 per share; however, the firm will net only $80 per share from the sale of new preferred stock. Ross expects to retain $15,000 in earnings over the next year. Ross' common stock currently sells for $40 per share, but the firm will net only $34 per share from the sale of new common stock. The firm recently paid a dividend of $2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 10 percent per year.
-Refer to J.Ross and Sons Inc.What is the firm's cost of newly issued common stock?

• A)10.0%
• B)12.5%
• C)15.5%
• D)16.5%
• E)18.0%

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Definitions:

Makespan

The total time needed to complete a set of tasks, from start to finish, under specific conditions.

Idle Time

Periods when resources, such as employees or machines, are not productive, often due to a lack of work or inefficiency.

Machine 1

A term referring to a specific machine within a series or factory setup, usually designated as the first in a sequence or category.

Dependent Demand

The demand for a product that is directly linked to the demand for another product, such as the demand for parts or raw materials needed to produce a final product.