Which is a true statement B. Debt has $0 marginal cost A. Flotation cost must be...
Which is a true statement
B. Debt has $0 marginal cost
A. Flotation cost must be considered with retained earnings
E. Since taxes are required they are not a factor to investors
D. The investor required rate of return is the firm"s costs of capital
C. In general the after tax cost of debt is the most expensive component in the cost of capital
Homework Answers
All statements except statement D are not true.
The correct answer in this case is D. The investor required rate of return is the firm"s costs of capital
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Which is a true statement
B. Debt has $0 marginal cost
A. Flotation cost must be...
The cost of debt that is relevant when companies are evaluating new investment projects is the marginal cost of the new...
The cost of debt that is relevant when companies are evaluating new investment projects is the marginal cost of the new debt to be raised to finance the new project. Consider the case of Purple Lemon Fruit Company (Purple Lemon): Purple Lemon Fruit Company is considering issuing a new 15-year debt issue that would pay an annual coupon payment of $75. Each bond in the issue would carry a $1,000 par value and would be expected to be sold for...
Cost of new common stock A firm needs to take flotation costs into account when it...
Cost of new common stock A firm needs to take flotation costs into account when it is raising capital fromissuing new common stock . True or False: The following statement accurately describes how firms make decisions related to issuing new common stock. If a firm needs additional capital from equity sources once the retained earnings breakpoint is reached, it will have to raise the capital by issuing new common stock. True: Firms will raise all the equity they can from...
A. Calculate the after-tax cost of debt. b. Calculate the cost of preferred stock. c. Calculate t...
a. Calculate the after-tax cost of debt.
b. Calculate the cost of preferred stock.
c. Calculate the cost of common stock (both retained earnings
and new common stock).
d. Calculate the WACC for Dillon Labs.
Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights:...
True False O 0 1. Flotation costs serve to decrease the cost of preferred stock. O...
True False O 0 1. Flotation costs serve to decrease the cost of preferred stock. O 0 2. For a firm with debt, V > E. O 0 3. The cost of retained earnings is not affected by flotation costs. 0 0 4. It is not fair to assume that preferred stock’s par value will be repaid. 0 O 0 o 5. According to the subjective method, the company's current beta value should only be used for projects with average...
The required return (or cost) of previously issued debt is often referred to as the projected rate. It usually differs...
The required return (or cost) of previously issued debt is often referred to as the projected rate. It usually differs from the cost of newly raised financial capital. Consider the case of Peaceful Book Binding Company: Peaceful Book Binding Company is considering issuing a new twenty-five-year debt issue that would pay an annual coupon payment of $75. Each bond in the issue would carry a $1,000 par value and would be expected to be sold for a market price equal...
5. Flotation costs and the costs of new debt and equity capital Aa Aa Read each...
5. Flotation costs and the costs of new debt and equity capital Aa Aa Read each of the following statements, and indicate whether each statement is true or false. False True O Statement The cost of retained earnings and the cost of new common stock are calculated in the same manner, except that the cost of the new shares is based on the value of the firm's share price net of its flotation cost, while the cost of a firm's...
Marginal Incorporated (MI) has determined that its after-tax cost of debt is 7.0%. Its cost of...
Marginal Incorporated (MI) has determined that its after-tax cost of debt is 7.0%. Its cost of preferred stock is 15.0%. Its cost of internal equity is 19.0%, and its cost of external equity is 24.0%. Currently, the firm's capital structure has $470 million of debt, $90 million of preferred stock, and $440 million of common equity. The firm's marginal tax rate is 25%. The firm is currently making projections for the next period. Its managers have determined that the firm...
5. Cost of new common stock Flotation costs represent the fees that firms pay to investment...
5. Cost of new common stock Flotation costs represent the fees that firms pay to investment bankers to help them issue new common stock. True or False: The following statement accurately describes how firms make decisions related to issuing new common stock. The cost of issuing new common stock is calculated the same way as the cost of raising equity capital from retained earnings. False: Flotation costs need to be taken into account when calculating the cost of issuing new...
1. Jungle Joe’s has a debt-equity ratio of 1.05. The firm has a flotation cost of...
1. Jungle Joe’s has a debt-equity ratio of 1.05. The firm has a flotation cost of debt of 7.4 percent and a flotation cost for equity of 12.74 percent. How much does the firm need to borrow to fully fund a project that has an initial cost of $68.0 million? $78.255 million $73.306 million $75.560 million $77.508 million 2. Preston Industries has a WACC of 11.68 percent. The capital structure consists of 60.6 percent equity and 35.6 percent debt. The...
(Select all relevant.] A firm's marginal cost of capital is the weighted average of the cost of the debt and equity...
(Select all relevant.] A firm's marginal cost of capital is the weighted average of the cost of the debt and equity provided to the company by all investors and creditors. rate of return the firm must earn on its investments, in order to maintain its stock price. minimum rate of return that investors require for providing capital to the company discount rate used to evaluate the cash flows of investment projects with the same risk as the firm's existing assets....
a. Calculate the after-tax cost of debt.
b. Calculate the cost of preferred stock.
c. Calculate the cost of common stock (both retained earnings
and new common stock).
d. Calculate the WACC for Dillon Labs.
Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights:...
True False O 0 1. Flotation costs serve to decrease the cost of preferred stock. O 0 2. For a firm with debt, V > E. O 0 3. The cost of retained earnings is not affected by flotation costs. 0 0 4. It is not fair to assume that preferred stock’s par value will be repaid. 0 O 0 o 5. According to the subjective method, the company's current beta value should only be used for projects with average...
The required return (or cost) of previously issued debt is often referred to as the projected rate. It usually differs from the cost of newly raised financial capital. Consider the case of Peaceful Book Binding Company: Peaceful Book Binding Company is considering issuing a new twenty-five-year debt issue that would pay an annual coupon payment of $75. Each bond in the issue would carry a $1,000 par value and would be expected to be sold for a market price equal...
5. Flotation costs and the costs of new debt and equity capital Aa Aa Read each of the following statements, and indicate whether each statement is true or false. False True O Statement The cost of retained earnings and the cost of new common stock are calculated in the same manner, except that the cost of the new shares is based on the value of the firm's share price net of its flotation cost, while the cost of a firm's...
5. Cost of new common stock Flotation costs represent the fees that firms pay to investment bankers to help them issue new common stock. True or False: The following statement accurately describes how firms make decisions related to issuing new common stock. The cost of issuing new common stock is calculated the same way as the cost of raising equity capital from retained earnings. False: Flotation costs need to be taken into account when calculating the cost of issuing new...
(Select all relevant.] A firm's marginal cost of capital is the weighted average of the cost of the debt and equity provided to the company by all investors and creditors. rate of return the firm must earn on its investments, in order to maintain its stock price. minimum rate of return that investors require for providing capital to the company discount rate used to evaluate the cash flows of investment projects with the same risk as the firm's existing assets....
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