5. Cost of new common stock A firm needs to take flotation costs into account when it is raising capital from 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 retained earnings before issuing new common stock, because capital from retained earnings is cheaper than capital raised from issuing new common stock. O False: Firms raise capital from retained earnings only when they cannot issue new common stock due to market conditions outside of their control. Cute Camel Woodcraft Company is considering a one-year project that requires an initial investment of $500,000; however, in raising this capital, Cute Camel will incur an additional flotation cost of 5%. At the end of the year, the project is expected to produce a cash inflow of $700,000. The rate of return that Cute Camel expects to earn on the project after its flotation costs are taken into account is v Cute Camel has a current stock price of $33.35 and is expected to pay a dividend of $2.45 at the end of next year. The company's growth rate is expected to remain constant at 6%. If the issue's flotation costs are expected to equal 5% of the funds raised, the flotation-cost-adjusted cost of the firm's new common stock is Cute Camel's addition to earnings for this year is expected to be $420,000. Its target capital structure consists of 35% debt, 5% preferred stock, and 60% common stock. Cute Camel Woodcraft Company's retained earnings breakpoint is (rounded to the nearest whole dollar)