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

question 90

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.Where will a break in the WACC curve occur?

• A) $30,000
• B) $20,000
• C) $10,000
• D) $42,000
• E) There will be no breaks in the WACC curve.

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Definitions:

Deflation

A decrease in the general price level of goods and services, leading to an increase in the purchasing power of money.

Foreign Investors

Individuals or entities that invest capital in business ventures in a country other than their own, seeking to earn a return on their investment.

Full Employment GDP

The output level (Gross Domestic Product) achieved by an economy when all available resources are employed, but not beyond sustainable capacity.

Recessionary Gap

A situation where real GDP is less than potential GDP, indicating underutilized economic resources.