1. Oval Inc. has just paid a dividend of $2 per share on its common stock, and it expects this dividend to grow by 4 percent, indefinitely. The firm plans to issue common stock of $20. The firms investment bankers believe that the new issue of the common stock would have a flotation cost equal to 4 percent of the current market price. Which of the following is the cost of the newly issued common stock? ( round of answers to two decimal places).

a. 14.83 percent

b. 10.15 percent

c. 15.36 percent

d. 13.80 percent

e. 16.92 percent

2. The current market interest rate declines from 10 to 8 percent. Due to interest rate reinvestment risk, the bondholders will

a. receive a lower market value for the bond

b. call back the bond before its annuity

c. call back the bond before its maturity

d. earn a lower return on the reinvested cash flows

e. receive a lower coupon interest than mentioned in the bond indenture

3. Scubapro Corporation has 500,000 shares outstanding and plans to issue 500,000 more shares. The current shareholders have preemptive rights on any new issue of stock by Scubapro Corporation. How many shares of stock would an investor with 20,000 shares, who exercises his preemptive rights on the new stock issue, have the right to buy?

a. 200,000

b. 120,000

c. 20,000

d. 12,000

e. 8,000

4. If the interest rate is 8%, compounded semiannually, the present value of $8,200 to be received in 12 years is ___________

5. Andrea's opportunity cost rate is 11 percent compounded annually. How much must he deposit in an account today if she wants to receive $2,100 at the beginning of each of the next seven years?

a. $10,984

b. $10,998

c. $11,625

d. $11,887

e. $12,564