J. Ross and Sons Inc

question 13

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.Where will a break in the WACC curve occur?

• A)$30,000
• B)$20,000
• C)$10,000
• D)$42,000
• E)There will be no breaks in the WACC curve.

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Definitions:

Independent Variables

Variables in an experiment or model that are manipulated or classified to see their effect on dependent variables.

Dependent Variables

Variables in an experiment or model that are expected to change in response to changes in the independent variables.

Stepwise Regression

A method of fitting regression models in which the choice of predictive variables is carried out by an automatic procedure, adding or removing variables based solely on statistical criteria.

Stepwise Regression

A regression analysis technique where an automatic process is used to select the predictive variables.