Table 9.2 A Firm Has Determined Its Optimal Structure Which Is Composed

question 20

Multiple Choice

Table 9.2
A firm has determined its optimal structure which is composed of the following sources and target market value proportions. Debt: The firm can sell a 15-year, $1,000 par value, 8 percent bond for $1,050. A flotation cost of 2 percent of the face value would be required in addition to the premium of $50.
Common Stock: A firm's common stock is currently selling for $75 per share. The dividend expected to be paid at the end of the coming year is $5. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $3.10. It is expected that to sell, a new common stock issue must be underpriced $2 per share and the firm must pay $1 per share in flotation costs. Additionally, the firm has a marginal tax rate of 40 percent.
-The firm's cost of retained earnings is ________. (See Table 9.2)

• A) 10.2 percent
• B) 14.3 percent
• C) 18.9 percent
• D) 17.0 percent

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Definitions:

Ineffectual Treatment

Medical or therapeutic interventions that fail to produce the desired beneficial outcome.

Manipulated Variable

In experimental research, the manipulated variable is the factor that is intentionally changed or controlled by the researcher to observe its effects on the dependent variable.

Measured Variable

A variable in research that is quantified or measured directly by the researcher, as opposed to being manipulated or controlled.

Independent Variable

In a study, the factor that is intentionally altered to determine its impact on the outcome variable.