Tangerine Inc

question 32

Multiple Choice

Tangerine Inc.'s target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Its bonds have a 12 percent coupon, paid semiannually, a current maturity of 20 years, and sell for $1,000. The firm's marginal tax rate is 40 percent. The firm's policy is to use a risk premium of 4 percentage points when using the bond-yield-plus-risk-premium method to find the cost of retained earnings. Which of the following is Tangerine's component cost of retained earnings?

• A) 8 percent
• B) 10 percent
• C) 12 percent
• D) 14 percent
• E) 16 percent

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Definitions:

Break-even Analysis

A financial calculation to determine the point at which a business, product, or project will become profitable, by equating total revenues with total costs.

Single Product

Referring to businesses or production processes that focus on the manufacture or sale of one specific product.

Redesign

The process of changing or modifying the design of a product, service, or system to improve functionality or aesthetics.

Throughput

The time required to move orders through the production process, from receipt to delivery.