Becker Glass Corporation Becker Glass Corporation Expects to Have Earnings Before Interest and Before

question 25

Multiple Choice

Becker Glass Corporation
Becker Glass Corporation expects to have earnings before interest and taxes during the coming year of $1,000,000, and it expects its earnings and dividends to grow indefinitely at a constant annual rate of 12.5 percent. The firm has $5,000,000 of debt outstanding bearing a coupon interest rate of 8 percent, and it has 100,000 shares of common stock outstanding. Historically, Becker has paid 50 percent of net earnings to common shareholders in the form of dividends. The current price of Becker's common stock is $40, but it would incur a 10 percent flotation cost if it were to sell new stock. The firm's tax rate is 40 percent.
-Refer to J.Ross and Sons.What will be the WACC above this break point?

• A) 12.5%
• B) 8.3%
• C) 10.6%
• D) 11.9%
• E) 14.1%

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Definitions:

Aberration

A deviation from the norm or what is considered standard, usual, or expected.

Objective Reality

The concept of a reality that exists independently of human thoughts, perceptions, and interpretations, often contrasted with subjective reality.

Homogenous

Characterized by uniformity; composed of parts or elements that are all of the same kind.

Miner's Canary

A metaphor used to describe an early warning sign or indicator of potential danger or failure, particularly in policies or systems.