Suppose a New Project Was Going to Be Financed Partially

question 113

Multiple Choice

Suppose a new project was going to be financed partially with retained earnings.What flotation costs should you use for retained earnings?

• A) Use the same flotation cost that would be used to issue new common stock
• B) Use an average of the flotation costs for debt, preferred and common stock
• C) Use the industry average flotation cost for common stock
• D) Zero

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Definitions:

Consumption Function

An economic formula that expresses the relationship between total consumption and gross national income, indicating how much households are likely to spend.

Disposable Income

Disposable income refers to the amount of money individuals or households have available to spend or save after income taxes are deducted.

Marginal Propensity

The ratio of change in an economic variable (e.g., consumption, saving) to a change in another economic variable (e.g., income).

Disposable Income

Post-tax income that households can allocate towards savings and expenses.