J. Ross and Sons Inc

question 38

Multiple Choice

J. Ross and Sons Inc.
J. Ross and Sons Inc. has a target capital structure that calls for 40 percent debt, 10 percent preferred stock, and 50 percent common equity. The firm's current after-tax cost of debt is 6 percent, and it can sell as much debt as it wishes at this rate. The firm's preferred stock currently sells for $90 a share and pays a dividend of $10 per share; however, the firm will net only $80 per share from the sale of new preferred stock. Ross expects to retain $15,000 in earnings over the next year. Ross' common stock currently sells for $40 per share, but the firm will net only $34 per share from the sale of new common stock. The firm recently paid a dividend of $2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 10 percent per year.
-Refer to J.Ross and Sons Inc.What is the firm's cost of newly issued common stock?

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

---

Definitions:

Women's Groups

Organizations or collectives aimed at addressing issues, providing support, and promoting rights specific to women.

Minority Groups

Ethnic, racial, religious, or other groups that are smaller in number within a larger population and may be subject to differential treatment.

Social Integration

The process of ensuring that individuals or groups are effectively incorporated into the social structures of a community, ensuring access to resources and participation.

Normative Behavior

Actions or conduct considered typical or standard within a group, society, or culture, often conforming to social norms.