A Firm Has Determined Its Optimal Structure Which Is Composed

question 75

Multiple Choice

A firm has determined its optimal structure which is composed of the following sources and target market value proportions.
$$\begin{array} { l c } \text { Source of capital } & \begin{array} { c } \text { Target market } \\\text { Proportions }\end{array} \\\hline \text { Long-term debt } & 60 \% \\\text { Common stock equity } & 40\end{array}$$
DEBT: The firm can sell a 15-year, $1,000 par value, 8 percent bond for $1,050. A flotation cost of 2 percent of the face value would be required in addition to the premium of $50.
COMMON STOCK: A firm's common stock is currently selling for $75 per share. The dividend expected to be paid at the end of the coming year is $5. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $3.10. It is expected that to sell, a new common stock issue must be underpriced $2 per share and the firm must pay $1 per share in flotation costs. Additionally, the firm has a marginal tax rate of 40 percent.

-The firm's cost of a new issue of common stock is

• A) 14.3 percent.
• B) 10.2 percent.
• C) 16.7 percent.
• D) 17.0 percent.

---

Definitions:

Immigration Customs

Procedures and regulatory policies that govern the entry and exit of persons and goods across national borders.

Worksite Enforcement

Measures and actions taken to ensure compliance with laws and regulations within a workplace, particularly concerning immigration and labor standards.

Sexual Harassment

Unwanted sexual advances, comments, or physical contact, especially in the workplace, that create a hostile or offensive environment.

Hostile Work Environment

A form of harassment in which unwelcome conduct based on race, religion, sex, national origin, age, disability, or genetic information unreasonably interferes with an employee's work performance or creates an intimidating, hostile, or offensive work environment.