Company Can't Lower Its Total Cost of the $100 Million

question 39

Multiple Choice

Company can't lower its total cost of the $100 million of debt very much if any by the mix of debentures or mortgage bonds.
2) Debentures' risk rises as mortgage debt rises.
3) Mortgage bonds' risk rises as more mortgage bonds are issued.
4) So,the "WACD" will likely remain fairly stable.
25) Bouchard Company's stock sells for $20 per share,its last dividend (D₀) was $1.00,its growth rate is a constant 6 percent,and the company would incur a flotation cost of 20 percent if it sold new common stock.Retained earnings for the coming year are expected to be $1,000,000,and the common equity ratio is 60 percent.If Bouchard has a capital budget of $2,000,000,what component cost of common equity will be built into the WACC for the last dollar of capital the company raises?

• A) 11.30%
• B) 11.45%
• C) 11.80%
• D) 12.15%
• E) 12.63%

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Definitions:

AGI

AGI, short for Adjusted Gross Income, is an individual's total gross income minus specific deductions, used to determine how much of one's income is taxable.

Rental Activity

Engaging in the act of renting out property or equipment as a business operation to generate income.

AMT Adjustments

Modifications made to calculate the Alternative Minimum Tax (AMT), aiming to ensure that high-income earners pay a minimum amount of income tax.

Tax Preferences

Provisions in the tax code that allow for certain incomes to be taxed at rates lower than the ordinary income tax rate or not taxed at all.