Becker Glass Corporation Becker Glass Corporation Expects to Have Earnings Before Interest and Before

question 106

Multiple Choice

Becker Glass Corporation
Becker Glass Corporation expects to have earnings before interest and taxes during the coming year of $1,000,000, and it expects its earnings and dividends to grow indefinitely at a constant annual rate of 12.5 percent. The firm has $5,000,000 of debt outstanding bearing a coupon interest rate of 8 percent, and it has 100,000 shares of common stock outstanding. Historically, Becker has paid 50 percent of net earnings to common shareholders in the form of dividends. The current price of Becker's common stock is $40, but it would incur a 10 percent flotation cost if it were to sell new stock. The firm's tax rate is 40 percent.
-Refer to Becker Glass Corporation.What is the firm's cost of retained earnings?

• A) 15.0%
• B) 15.5%
• C) 16.0%
• D) 16.5%
• E) 17.0%

---

Definitions:

Stereotype Threat

The risk of confirming negative stereotypes about an individual's racial, ethnic, gender, or cultural group which can hinder performance.

Social Comparison Theory

A theory suggesting individuals determine their own social and personal worth based on how they stack up against others.

Persuade

The act of convincing someone to do something or to believe in something through reasoning, argumentation, or appeal.

Aggressively

Behaving or acting in a manner that is forceful, assertive, or with a strong intent to dominate or succeed.