70.2K

Verified Solution

Link Copied!

True or False: The following statement accurately describes how firms make decisions related to issuing now common stock. The cost of issuing new common stock is calculated the same way as the cost of raising equity capital from retained earnings. True: The cost of retained earnings and the cost of new commen stock are calculated in the same manner, except that the cost of retained earnings is basod on the firm's existing common equity, while the cost of new common stock is based on the value of the firm's. share price net of its notation cost. False: Flotation costs need to be taken into account when calculating the cost of issuing new commen stock, but they do not need to be taken into account when raising capital from retained earningt: Sunny Day Manufacturing Company is considering investing in a one-yoar project that requires an initiat investment of 5475,000 . To do so, it wis hay 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 $550,000. The rate of return that Sunny Day expects to earn on its project (net of its flotation costs) is Crounded to two decimal White Lion Homebuilders has a current stock price of $22.35 per share, and is expected to pay a per share dividand of $2.03 at the end of the yez The company's earnings' and dividends' growth rate are expected to grow at the constant rate of 9.40% into the foreseeable future. If White Lion expects to incur flotation costs of 6.50% of the value of its newly- raisad equity funds, then the flotation-adjusted (net) cost of its new corrimon ste (rounded to two decimal places) should be Sunny Day Manufacturing Company Co,s addition to eamings for this year is expected to be 5420,000 . Its target capital itructure consists of 50\% debt, 3% proferred, and 45% equity. Determine Surny Day Manufacturing Company'i retained earkings breakpoint: 51,026,666 $933,393 $1,120,000 5886,666

Answer & Explanation Solved by verified expert

See Answer