Global Advertising Company the Global Advertising Company Had Net Income After Interest but After

question 22

Multiple Choice

Global Advertising Company
The Global Advertising Company had net income after interest but before taxes of $40,000 this year. The marginal tax rate is 40 percent, and the dividend payout ratio is 30 percent. The company can raise debt at a 12 percent interest rate for any amount of debt less than $8,000. If the firm raises $8,000 or more of debt, a 15 percent interest rate will apply to that new debt. The last dividend paid by Global was $0.90. Global's common stock is selling for $8.59 per share, and its expected growth rate in earnings and dividends is 5 percent. If Global issues new common stock, the flotation cost incurred will be 10 percent. Global plans to finance all capital expenditures with 30 percent debt and 70 percent equity.
-Refer to Global Advertising Company.What is the break point due to retained earnings being used up?

• A) $17,000
• B) $30,000
• C) $56,000
• D) $24,000
• E) $10,000

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Definitions:

Deposits

Funds placed into a bank account for safekeeping or as a pledge as part of a financial transaction.

Certified

Officially recognized as possessing certain qualifications or meeting specific standards.

Forges

The act of illegally copying or fabricating something, usually documents, artwork, or currency, with the intent to deceive.

Suffers The Loss

Experiencing negative consequences, usually financial, as a result of an event, decision, or action.