The cost of internal equity is cheaper than the cost of external equity. Which of the following statements is/are correct?
I. External equity may incur expenses which are deducted from the capital received for the sale of the security.
II. Corporations generally discount the price of the securities that are sold to the public in order to raise capital.
I only
II only
Both I and II
Neither I nor II
41. What would be the weighted average cost of capital for Limp Linguini Noodle Makers, Inc. under the following conditions: 1. The capital structure is 40% debt and 60% equity. 2.The before-tax cost of debt (which includes flotation costs) is 20% and the firm is in the 40% tax bracket. 3. The firm's beta is 1.7. 4. The risk-free rate is 7% and the market risk premium is 6%. (Points : 1) 15.12% 18.7% 17.2% 12%
42. The cost of common stock equity may be estimated by using which of the following? (Points : 1) Earnings curve Dupont analysis Capital asset pricing model Price/Earnings ratio
43. A firm is determining its cost of common stock equity. It last paid a divided of $.52, the dividends are growing at 5%, flotation costs are $2 per share and the firm will net $72 per share upon the sale of the stock. What is the firm's cost of common equity? (Points : 1) 3.49% 8.22% 6.11% 5.76%
44. Surfin' Bubba Surfboard Shop is currently selling for $34.25 a share with a current dividend of $1.00. It is estimated that Surfin' Bubba will have a growth rate in earnings of 10% into the foreseeable future. If Surfin' Bubba plans to raise new capital for expansion, what is the cost of new equity if flotation costs are 8% of the price. (Points : 1) 13.49% 11.57% 12.21% 10.87%
45. In determining the cost of debt, several factors must be considered. All of the following are those factors EXCEPT: (Points : 1) the firm's before-tax cost of debt the firm's tax rate flotation costs the firm's growth rate of dividends