Solved

What Is the Cost of Retained Earnings for Foggy Futures

question 9

Multiple Choice

What is the cost of retained earnings for Foggy Futures Weather Forecasters? The firm is in the 40% tax bracket. The optimal capital structure is listed below: ? $\begin{array} { | l | l | } \hline \text { S ource of Capital } & \text { W eight } \\\hline \text { Long-Term Debt } & 25 \% \\\hline \text { Preferred Stock } & 20 \% \\\hline \text { Common Stock } & 55 \% \\\hline\end{array}$ ? $\begin{array}{|l|l|}\hline \text { Debt: }&\begin{array}{ll}\text {The firm can issue $ \$ 1,000 \mathrm{p} $ ar value, $ 8 \% $ coupon interest bonds with a 20 -year }\\\text {maturity date. The bond has an average discount of $ \$ 30 $ and flotation costs of }\\\text { $ \$ 30 $ per bond. The selling price is $ \$ 1,000 $ .}\end{array}\\\hline \text {Preferred Stock: }&\begin{array}{ll}\text {The firm can sell preferred stock with a dividend that is $ 8 \% $ of the current price. }\\\text { The stock costs $ \$ 95 $ . The cost of issuing and selling the stock is expected }\\\text {to be $ \$ 5 $ per share. }\end{array}\\\hline \text {Common Stock: }&\begin{array}{ll}\text {The firm's common stock is currently selling for $ \$ 90 $ per share. }\\\text {The firm's common stock is currently selling for $ \$ 90 $ per share. The firm expects to pay cash dividends }\\\text { The dividends have been growing at $ 6 \% $ . The stock must be discounted by $ \$ 7 $ , }\\\text {and flotation costs are expected to amount to $ \$ 5 $ per share. }\end{array}\\\hline \text { Retained Earnings:}&\begin{array}{ll}\text { The firm expects to have enough retained earnings in the coming year to be used}\\\text { in place of any new stock being issued. }\end{array}\\\hline \end{array}$

Definitions:

Leadership Style

The approach and behavior a leader adopts in guiding and influencing the actions of a group towards achieving goals.

Hersey-Blanchard

A situational leadership model proposing that effective leadership requires adapting one's style to the developmental level of followers in terms of their competence and commitment.

Leadership Style

The method and strategy of offering guidance, executing strategies, and inspiring individuals.

Telling Style

A leadership approach characterized by clear instructions and close supervision, often used in situations requiring quick action or with inexperienced teams.