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

question 87

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 J.Ross and Sons.What is the firm's cost of retained earnings?

• A) 10.0%
• B) 12.5%
• C) 15.5%
• D) 16.5%
• E) 18.0%

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Definitions:

Cost Effective

Referring to an operation, process, or product that provides the best possible outcome or value for the money spent, often used in evaluating financial decisions and investments.

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