As the Winner of a Contest, You Are Now CFO

question 81

Multiple Choice

As the winner of a contest, you are now CFO for the day for Maguire Inc.and your day's job involves raising capital for expansion.Maguire's common stock currently sells for $45.00 per share, the company expects to earn $2.75 per share during the current year, its expected payout ratio is 70%, and its expected constant growth rate is 6.00%.New stock can be sold to the public at the current price, but a flotation cost of 8% would be incurred.By how much would the cost of new stock exceed the cost of common from reinvested earnings?

• A) 0.09%
• B) 0.19%
• C) 0.37%
• D) 0.56%
• E) 0.84%

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Definitions:

Liable

Being legally responsible or obligated, typically referring to the duty to compensate for harm or damage caused.

Debts

Obligations owed by one party (the debtor) to another (the creditor), typically involving borrowed money that is expected to be paid back with interest.

Minor

An individual under the legal age of majority, typically 18 years in many jurisdictions, not having full legal rights and responsibilities.

Non-necessary Items

Products or services deemed not essential for basic living and functioning.