Trahern Baking Co

question 69

Multiple Choice

Trahern Baking Co.common stock sells for $32.50 per share.It expects to earn $3.50 per share during the current year, its expected dividend payout ratio is 65%, and its expected constant dividend growth rate is 6.0%.New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred.What would be the cost of equity from new common stock?

• A) 12.70%
• B) 13.37%
• C) 14.04%
• D) 14.74%
• E) 15.48%

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Definitions:

Robinson-Patman Act

A United States federal law that aims to prevent anticompetitive practices by producers, specifically price discrimination.

Price Differentials

The variation in price levels between different geographic areas, markets, or products due to various factors like competition, demand, and cost of living.

Cost of Manufacture

The total expenses incurred in producing a product, including materials, labor, and overhead costs.

Price Discrimination

A pricing strategy where identical or substantially similar goods or services are sold at different prices by the same provider.