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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:

Craters

Bowl-shaped depressions on the surface of planets, moons, and other celestial bodies, typically formed by impacts or volcanic activity.

Tectonically Active

Describing regions where the Earth's tectonic plates meet and interact, causing earthquakes, volcanic activity, and mountain building.

Supports Life

The capacity of an environment or planet to provide suitable conditions and necessary resources for living organisms to survive and reproduce.

Generates Heat

The process of transforming energy into heat, which can occur through various means such as chemical reactions, electrical resistance, or nuclear reactions.