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

question 103

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 after-tax cost of debt is ________. (See Table 9.2)

• A) 4.6 percent
• B) 6 percent
• C) 7 percent
• D) 7.7 percent

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Definitions:

Schema Theories

Concepts in cognitive psychology that describe how knowledge is organized and understood through frameworks or structures in the mind.

Network Theories

Explain the frameworks and principles that describe how networks form, operate, and evolve. These include social, informational, and biological networks.

Reconstruct Information

The process of piecing together fragmented data or knowledge to form a coherent understanding.

Encoding

The process of converting information into a form that can be stored in memory.