Coco Company Is Financed Entirely by Common Stock Which Is

question 51

Multiple Choice

Coco Company is financed entirely by common stock which is priced to offer a 10% rate of return.Coco has an income tax rate of 40%.If the company repurchases 40% of the stock and substitutes an equal value of debt costing 7%, what is the cost on the common stock after repurchasing?

• A)10%
• B)11.2%
• C)12%
• D)None of the above

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Definitions:

Equity-Method

An accounting technique used to record investments in affiliate companies, where the investment is initially recorded at cost and adjusted thereafter for the investor's share of the investee's profits or losses.

Operating Activities

Activities that relate directly to the operation of a business, including sales revenue and expenses, reflected in the cash flow statement.

Decrease in Inventory

A reduction in the amount of goods available for sale or use, often reflected in financial statements and can indicate sales performance or a strategy to lower inventory levels.

Acquisition of Treasury Stock

The process by which a company buys back its own shares from the marketplace, reducing the amount of outstanding stock.