Common Stock: A firm's common stock is currently selling for $75 per share. The dividend expected to be paid at the end of the coming year is $5. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $3.10. It is expected that to sell, a new common stock issue must be underpriced $2 per share and the firm must pay $1 per share in flotation costs. Additionally, the firm has a marginal tax rate of 40 percent.
The firm's before-tax cost of debt is ________. (See Table 11.2.)
A) 7.7 percent.
B) 10.6 percent.
C) 11.2 percent.
D) 12.7 percent.
The firm's after-tax cost of debt is ________. (See Table 11.2.)
A) 4.6 percent.
B) 6 percent.
C)7 percent.
D) 7.7 percent.
The firm's cost of a new issue of common stock is ________. (See Table 11.2.)
A) 10.2 percent.
B)14.3 percent.
C)16 .7 percent.
D) 17.0 percent.
The firm's cost of retained earnings is ________. (See Table 11.2.)
A) 10.2 percent.
B) 14.3 percent.
C) 16.7 percent.
D) 17.0 percent.
The weighted average cost of capital up to the point when retained earnings are exhausted is ________. (See Table 11.2.)
A)6.8 percent.
B)7.7 percent.
C) 9.44 percent.
D) 11.29 percent.
Assuming the firm plans to pay out all of its earnings as dividends, the weighted average cost of capital is ________. (See Table 11.2.)
A) 9.6 percent.
B) 10.9 percent.
C)11.6 percent.
D) 12.1 percent.