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

question 60

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 newly issued preferred stock?

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

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Definitions:

Healthy Self-Concept

A positive perception or image of oneself, reflecting confidence and an understanding of one's strengths and weaknesses.

Number 1

Often represents the first in a series or a winner in a competition; in mathematics, it's the natural number that follows 0 and precedes 2.

Factors

Numbers or quantities that can be multiplied together to produce another number, often used in breaking down numbers into their elemental parts.