A Firm Has Common Stock with a Market Price of $100

question 102

Multiple Choice

A firm has common stock with a market price of $100 per share and an expected dividend of $5.61 per share at the end of the coming year. A new issue of stock is expected to be sold for $98, with $2 per share representing the underpricing necessary in the competitive capital market. Flotationcosts are expected to total $1 per share. The dividends paid on the outstanding stock over the past five years are as follows: $$\begin{array} { c c } \text { Year } & \text { Dividend } \\\hline 1 & \$ 4.00 \\2 & 4.28 \\3 & 4.58 \\4 & 4.90 \\5 & 5.24\end{array}$$ The cost of this new issue of common stock is

• A) 7.7 percent.
• B) 10.8 percent.
• C) 12.8 percent.
• D) 5.8 percent.

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Definitions:

Hallucination

A sensory experience of something that does not exist outside the mind, often seen, heard, or felt by a person.

Negative Symptoms

Features that are diminished or absent in certain conditions, such as the reduced expression of emotions or decreased motivation, often associated with schizophrenia.

Loose Associations

A thought disorder characterized by disjointed thinking where the connection between thoughts is difficult to discern, often observed in schizophrenia.

Delusions

False beliefs held with conviction despite evidence to the contrary, often occurring as a symptom of psychiatric disorders.