5. Cost of new common stock

A firm needs to take flotation costs into account when it is raising capital from (retained earnings OR issuing 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 common stock, but they do not need to be taken into account when raising capital from retained earnings.

OR

-True: The cost of retained earnings and the cost of new common stock are calculated in the same manner, except that the cost of retained earnings is based on the firms existing common equity, while the cost of new common stock is based on the value of the firms share price net of its flotation cost.

Cute Camel Woodcraft Company is considering a one-year project that requires an initial investment of $700,000; however, in raising this capital, Cute Camel will incur an additional flotation cost of 2%. At the end of the year, the project is expected to produce a cash inflow of $1,050,000. The rate of return that Cute Camel expects to earn on the project after its flotation costs are taken into account is (47.06%, 40%, 30.59%, OR 35.3%).

Cute Camel has a current stock price of $33.35 and is expected to pay a dividend of $2.03 at the end of next year. The companys growth rate is expected to remain constant at 6%. If the issue's flotation costs are expected to equal 2% of the funds raised, the flotation-cost-adjusted cost of the firm's new common stock is (12.1%, 9.77%, 12.21%, OR 10.38%).

Cute Camels addition to earnings for this year is expected to be $745,000. Its target capital structure consists of 50% debt, 5% preferred stock, and 45% common stock. Cute Camel Woodcraft Companys retained earnings breakpoint is ($1655556, $1821112, $1986667, OR $1572778) (rounded to the nearest whole dollar).

I found the answers:

issuing new common stock

false

47.06

12.21

1655556