Table 9.1 A Firm Has Determined Its Optimal Capital Structure Which Is

question 134

Multiple Choice

Table 9.1
A firm has determined its optimal capital structure which is composed of the following sources and target market value proportions. Debt: The firm can sell a 12-year, $1,000 par value, 7 percent bond for $960. A flotation cost of
2 percent of the face value would be required in addition to the discount of $40.
Preferred Stock: The firm has determined it can issue preferred stock at $75 per share par value. The stock will pay a $10 annual dividend. The cost of issuing and selling the stock is $3 per share.
Common Stock: A firm's common stock is currently selling for $18 per share. The dividend expected to be paid at the end of the coming year is $1.74. Its dividend payments have been growing at a constant rate for the last four years. Four years ago, the dividend was $1.50. It is expected that to sell, a new common stock issue must be underpriced $1 per share in floatation costs. Additionally, the firm's marginal tax rate is 40 percent.
-The firm's cost of preferred stock is ________. (See Table 9.1)

• A) 7.2 percent
• B) 8.3 percent
• C) 13.3 percent
• D) 13.9 percent

Comprehend the role and minimum points of average total cost (ATC) and average variable cost (AVC) curves in a firm's production decisions.

Identify the condition under which a firm should continue to operate or shut down in the short run based on price and cost analysis.

Understand the role of marginal cost in determining a perfectly competitive firm's short-run supply curve.

Recognize the short-run economic outcomes for a firm in a perfectly competitive market, including earning zero economic profit, making a loss, or earning a profit.

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Definitions:

Dopamine Neurons

Neurons that produce and release dopamine, a neurotransmitter that plays a key role in reward, motivation, memory, attention, and even regulating body movements.

Role Models

Individuals whose behavior, example, or success is or can be emulated by others, especially by younger people.

Smoking

The act of inhaling and exhaling the smoke of burned substances, most commonly tobacco, which is associated with a range of health risks including respiratory diseases and cancer.

Stressful

Characterized by or causing mental, emotional, or physical strain or tension.