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

question 127

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 retained earnings is ________.(See Table 9.2)

• A)10.2 percent
• B)14.3 percent
• C)18.9 percent
• D)15.0 percent

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Definitions:

Belonging Needs

Psychological requirements for human well-being emphasizing the importance of interpersonal connections and being part of a group or community.

Maslow's Hierarchy

A theory in psychology proposed by Abraham Maslow, outlining a hierarchy of needs from physiological at the base, ascending to safety, love/belonging, esteem, and self-actualization.

Organization

The arrangement or structuring of elements in a systematic way to achieve goals and objectives.

Self-Awareness

The conscious knowledge of one's own character, feelings, motives, and desires, which can lead to more informed decision-making and better interpersonal relations.