Schalheim Sisters Inc

question 38

Multiple Choice

Schalheim Sisters Inc.has always paid out all of its earnings as dividends,and hence has no retained earnings.This same situation is expected to persist in the future.The company uses the CAPM to calculate its cost of equity.Its target capital structure consists of common stock,preferred stock,and debt.Which circumstance would reduce the WACC?

• A)The market risk premium declines.
• B)The flotation costs associated with issuing new common stock increase.
• C)The company's beta increases.
• D)Expected inflation increases.

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Definitions:

Antitrust Legislation

Laws designed to protect consumers and ensure fair competition in the marketplace by regulating anti-competitive conduct and monopolies.

Lawful

That which is permitted by law; adhering to legal statutes and regulations.

Concerted Action

A collaborative effort by two or more parties to achieve a specific goal, often used in labor disputes.

Wholly Owned Subsidiary

A company whose entire share capital is held by another company.