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The Financial Analyst at GoodBuys Reasoned That Since the Costs

question 84

Essay

The financial analyst at GoodBuys reasoned that since the costs of flotation amount to about 15% of the proceeds for small common stock issues, the opportunity cost of external equity capital is about 15 percentage points higher than that of retained earnings. Comment on his reasoning.


Definitions:

FICA-Medicare

A portion of the Federal Insurance Contributions Act tax that funds Medicare, a federal health insurance program for people who are 65 or older and certain younger people with disabilities.

Net Pay

The amount of money an employee receives after deductions such as taxes and retirement contributions are subtracted from the gross pay.

FICA-OASDI

The Federal Insurance Contributions Act - Old Age, Survivors, and Disability Insurance, a payroll tax funding Social Security and Medicare in the U.S.

FICA-Medicare

The portion of the Federal Insurance Contributions Act tax that is designated to fund Medicare, the health insurance program for the elderly and certain disabled individuals.

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