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

question 38

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 Becker's cost of newly issued stock?

• A) 16.0%
• B) 16.5%
• C) 17.0%
• D) 17.5%
• E) 18.0%

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Definitions:

MRI

Magnetic Resonance Imaging, a diagnostic technique that uses magnetic fields and radio waves to create detailed images of the body's internal structures.

Synapses

The junctions between two neurons or between a neuron and a muscle where communication occurs through neurotransmitter release.

Axons

A part of a neuron that carries nerve impulses away from the cell body toward other neurons or muscles.

Dendrites

Branch-like extensions of neurons that receive signals from other neurons and conduct them towards the cell body.