1. Flotation costs have the impact of raising the component cost of capital for the firm for new issues of preferred and common stock. Agree or disagree, and why.
Preferred stock is riskier for an individual investor than corporate bonds. Agree or disagree, and why.
2. The CAPM states that the required rate of return on common equity is primarily a function of a single variable. Agree or disagree, and why.
If a firm had earnings per share in 2010 of $2, and 2015 EPS of $2.80, the firm’s earnings growth rate (g) exceeded 5% per year. Agree or disagree, and why.