Solved

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

question 130

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 weighted average cost of capital up to the point when retained earnings are exhausted is ________. (See Table 9.1)

Definitions:

Documentation

Written or electronic records that provide evidence of transactions, processes, or agreements.

Verification

The process of ensuring the accuracy and validity of data or documents.

Bank Reconciliation

A process that explains the difference between the bank balance shown in a company's bank statement and its financial records.

NSF Check

A check that cannot be processed due to insufficient funds in the account it is drawn on, commonly known as a bounced check.