#5

If a firm needs additional capital from equity sources once its retained earninos breakpeint is reached, it whil have to raise the capital by kesing new common stock True: Firms will ralse all the equily they can from retained earnings befoce issuing new common stock, becouse capital from retained earnings is cheaper than capital raised from issuing new common stock. False: Firms raise capital from retained eamings only when they cannot issue new common stock due to market conditians outside of their controt. White Lien Homebuiders is considering imvesting in a one year project that requires an initial imvestment of $475,000, To do so, it will have to issue new common stock and will incur a flotation cost of 2,00%. At the end of the vear, the project is expected to produce a cash inflow of $595,000. The rate of retarn that White tion expects to earn on its project (net of ics flotation costs) is (rounded to two decimal places). Apha Moose Tronsporters has a current stock price of $22.35 per share, and is expected to pay a per-share dividend of $2.03 at the end of the year. The company's earnings' and dividends' groweh rate are expected to grow at the constant rate of 9.40% into the foreseeable future. If Ajpha Moose. expects to incur flotation costs of 3.750% of the value of its newly-rased equ ty funds, then the flotation-adjusted (net) cost of its new common stock (rounded to two decimal places) sheuld be White Lon Hamebuilders Co. addition to earnings foe this year is expected to be $745,000. Its target capital structure consists of 50% debt, 5% preferred, and 45% eguity. Determine White Lion Homebulders's retained earnings breakpoint: $1,655,556 51,572,778 $2,069,445 51,490,000