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

question 53

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 cost of a new issue of common stock is ________. (See Table 9.2)

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Definitions:

Without a Fee

A situation where services are provided or actions are taken without any charge.

Engineer Liability

The legal responsibility held by engineers for the safety, functionality, and compliance of the structures, systems or products they design or work on.

Subsequent Purchasers

Individuals or entities who buy goods or property after the first or original sale.

Client Engagement

Client engagement refers to the activities and strategies used by an organization to maintain and enhance the relationship with its clients.