Byron Corporation Byron Corporation's Present Capital Structure, Which Is Also Its Target

question 85

Multiple Choice

Byron Corporation
Byron Corporation's present capital structure, which is also its target capital structure, is 40 percent debt and 60 percent common equity. Next year's net income is projected to be $21,000, and Byron's payout ratio is 30 percent. The company's earnings and dividends are growing at a constant rate of 5 percent; the last dividend (D0) was $2.00; and the current equilibrium stock price is $21.88. Byron can raise all the debt financing it needs at 14.0 percent. If Byron issues new common stock, a 20 percent flotation cost will be incurred. The firm's marginal tax rate is 40 percent.
-Refer to Byron Corporation.What is the maximum amount of new capital that can be raised at the lowest component cost of equity? (In other words,what is the retained earnings break point?
)

• A) $12,600
• B) $14,700
• C) $17,400
• D) $21,000
• E) $24,500

---

Definitions:

Cirrhosis

A chronic liver disease characterized by scarring (fibrosis) of liver tissue, which can lead to liver failure and other complications.

Liver

A large organ in the body that processes nutrients, detoxifies harmful substances, and produces bile.

Alcohol

A chemical compound known as ethanol found in beverages such as beer, wine, and spirits, often consumed recreationally and capable of altering consciousness and behavior.

Pancreatic Lipase

An enzyme that digests lipids.