J Ross and Sons Inc

question 33

Multiple Choice

J. Ross and Sons Inc. has a target capital structure that calls for 40 percent debt, 10 percent preferred stock, and 50 percent common equity. Ross' common stock currently sells for $40 per share. The firm recently paid a dividend of $2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 10 percent per year. Which of the following is the firm's cost of retained earnings? (Round off the answer to two decimal places.)

• A) 16.34 percent
• B) 10.42 percent
• C) 15.50 percent
• D) 12.20 percent
• E) 13.25 percent

---

Definitions:

Tax

A required monetary payment or different kind of tax levied on a taxpayer by government entities to finance government operations and public services.

Supply Function

A mathematical representation showing the relationship between the quantity of a good supplied by producers and various factors influencing that quantity, such as the good's price.

Demand Function

A mathematical representation showing the quantity of a good that consumers are willing and able to purchase at various prices.

Subsidy

A financial contribution granted by the government to reduce the production costs and encourage the supply of certain goods or services.