Question 1: In computing the cost of capital, do we use the historical costs of existing debt and equity or the current costs as determined in the market? Why?
Question 2: Why is the cost of debt less than the cost of preferred stock if both securities are priced to yield 10 percent in the market?
Question 3: Why is the cost of issuing new common stock (Kn) higher than the cost of retained earnings (Ke)?
Question 4: Why might a stock dividend or a stock split be of limited value to an investor?
Question 5: What advantages to the corporation and the stockholder do dividend reinvestment plans offer?