Grunewald Co

question 74

Multiple Choice

Grunewald Co.'s common stock currently sells for $60.00 per share,the company expects to earn $3.00 per share during the current year,its expected payout ratio is 40%,and its expected constant growth rate is 7.00%.New stock can be sold to the public at the current price,but a flotation cost of 9% would be incurred.By how much would the cost of new stock exceed the cost of retained earnings?

• A)0.05%
• B)0.10%
• C)0.20%
• D)0.30%

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Definitions:

Profit

The financial gain achieved when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Game Theory

The study of behavior in situations of interdependence. Used to explain the behavior of an oligopoly.

Dominant Strategies

In game theory, strategies that are best for a player, regardless of the strategies chosen by other players.

Payoff Matrix

In game theory, a diagram that shows how the payoffs to each of the participants in a two-player game depend on the actions of both; a tool in analyzing interdependence.