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

question 35

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 a new issue of common stock is ________. (See Table 9.1)

• A) 7 percent
• B) 9.08 percent
• C) 13.2 percent
• D) 14.4 percent

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Definitions:

Cardiovascular Disease

A group of conditions affecting the heart or blood vessels, encompassing coronary artery disease, hypertension, and stroke.

Glucose Metabolism

The process by which the body breaks down sugars to produce energy, critical for cellular function and overall health.

CVD

Cardiovascular Disease, a general term for conditions affecting the heart and blood vessels, often associated with atherosclerosis and heart disease.

Insulin

A hormone produced by the pancreas that regulates blood sugar levels by facilitating the movement of glucose into cells.