Allison Engines Corporation Has Established a Target Capital Structure of 40

question 73

Multiple Choice

Allison Engines Corporation has established a target capital structure of 40 percent debt and 60 percent common equity.The firm expects to earn $600 in after-tax income during the coming year,and it will retain 40 percent of those earnings.The current market price of the firm's stock is P₀ = $28;its last dividend was D₀ = $2.20,and its expected dividend growth rate is 6 percent.Allison can issue new common stock at a 15 percent flotation cost.What will Allison's marginal cost of equity capital (not the WACC) be if it must fund a capital budget requiring $600 in total new capital?

• A) 15.8%
• B) 13.9%
• C) 7.9%
• D) 14.3%
• E) 9.7%

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Definitions:

Destructive Behavior

Actions or behaviors that cause harm or damage, either to oneself or others, often as a manifestation of psychological distress.

Skill Development

The process of learning, enhancing, and mastering abilities or competencies in various areas.

DBT

Dialectical Behavior Therapy, a type of psychotherapy that combines behavioral science with Buddhist concepts like mindfulness and acceptance.

MCBT

Mindfulness-Based Cognitive Therapy, integrating mindfulness practices with cognitive therapy techniques to prevent depression relapse.