Jimbob CoIs Considering Ways to Finance a Planned Business Expansion After

question 132

Multiple Choice

Jimbob Co.is considering ways to finance a planned business expansion after which the company will have $150,000 in earnings before interest and income taxes.The income tax rate is 30%.One alternative being considered is to issue $500,000 in new preferred shares which will carry an annual dividend rate of 8%.The company's common shareholders' equity is expected to average $500,000.What will be the return on common shareholders' equity if this alternative is taken?

• A) 0%.
• B) 13%.
• C) 15%.
• D) 21%.

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Definitions:

Metric System

A system of measurement based on multiples of 10.

Gram

A metric unit of mass equal to one thousandth of a kilogram, commonly used in scientific measurements.

Apothecary Equivalent

A term used to refer to the equivalent measurements or substances used in old pharmacy practices.

Fluid Ounce

A unit of volume used primarily in the United States to measure liquids, equivalent to approximately 29.57 milliliters.