Which of the following differentiates the cost of retain earnings from the cost of newly issue common in stock the greater marginal tax rate faced by the new larger firm the floatation cost incurred when issuing new securities the larger dividends paid to the new common stockholders the cost of the preemptive right held by existing stockholders
Added by Jose Ramon B.
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Step 1: Identify the factor that differs between the cost of retained earnings and the cost of newly issued common stock. Show more…
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Eakins Inc.'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 retained earnings? 0.09% 0.19% 0.37% 0.56% 0.84%
Narayan H.
Brooke B.
Which of the following statements is correct? a. The percentage flotation cost associated with issuing new common equity is typically smaller than the flotation cost for new debt. b. The WACC as used in capital budgeting is an estimate of the cost of all the capital a company has raised to acquire its assets. c. There is an "opportunity cost" associated with using reinvested earnings, hence they are not "free." d. The WACC as used in capital budgeting would be simply the after-tax cost of debt if the firm plans to use only debt to finance its capital budget during the coming year. e. The WACC as used in capital budgeting is an estimate of a company's before-tax cost of capital.
Manasvee S.
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