Question

White Lion Homebuilders is considering investing in a one-year project that requires an initial investment of $475,000. To do so, it will have to issue new common stock and will incur a flotation cost of 2.00%. At the end of the year, the project is expected to produce a cash inflow of $595,000. The rate of return that White Lion expects to earn on its project (net of its flotation costs) is (rounded to two decimal places). Alpha Moose Transporters has a current stock price of $33.35 per share, and is expected to pay a per-share dividend of $1,36 at the end of the year. The company's earnings and dividends' growth rate are expected to grow at the constant rate of 9.40% into the foreseeable future. If Alpha Moose expects to incur flotation costs of 6.50% of the value of its newly-raised equity funds, then the flotation-adjusted (net) cost of its new common stock (rounded to two decimal places) should be White Lion Homebuilders Co.'s addition to earnings for this year is expected to be 5745,00. Its target capital structure consists of 40% debt, 5% preferred, and 55% equity. Determine White Lion Homebuilders's retained earnings breakpoint: $1,862,500 $1,354,545 $1,693,181 $1,625,454

Answer 1

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ke - Microsoft Excel (Product Activation Failed) Add-Ins View - 2x Dr General Wrap Text Merge Merge & Center Center SF 4:0 .00 8. Insert Delete Format $ - % % Number Conditional Format Formatting as Table Styles Cell Styles Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select File Home Insert Page Layout Formulas Data Review % Cut Calibri -11AA = = = Ea Copy Paste Format Painter B I U - D A Clipboard Font FP43 EN FOFPFO 42 43 Alignment Cells FR ES FT FU F V FW FX 5 44 45 46 47 1 INITIAL INVESTMENT ADD: FLOTATION COST (2%) TOTAL COST CASH INFLOW RATE OF RETURN = (595000/484500) -1 = 475000 9500 484500 595000 22.81% 48 49 50 51 52 53 2 PO = 33.35 D1= 1.36 9.40% f= 6.50% ke = D1/PO(1-f) + g = 1.36/(33.35(1-0.065)) + 0.094 = 13.76% 54 55 56 57 58 3 COMPANY'S RETAINED EARNINGS BREAK POINT = ADDITION TO RETAINED EARNINGS/ WEIGHT OF EQUITY 745000/0.55 = 1354545 59 60 HEN Rea convexity DGM betaport future INDEX INTL CAP BUD LEASING PV, FV, ANNUITYDIR right clean YIELD bond portfolio KE CAPM UTILITY, SHARPE, beta ferences: KN82 cap stru WACCRESI el BO. 130% 40-_+ DO 4 * 4 0 ENG 22-11-2019