$5.$ The cost of new common stock

True or False: The following statement accurately describes how firms make decisions related to issuing new common stock.

Taking flotation costs into account will reduce the cost of new common stock.

True: Taking flotation costs into account will reduce the cost of new common stock, because you will multiply the cost of new common stock by $1$ minus the flotation cost$$similar to how the after$-$tax cost of debt is calculated.

False: Flotation costs are additional costs associated with raising new common stock.

White Lion Homebuilders is considering investing in a one$-$year project that requires an initial investment of $$450,000.$ To do so$,$ it will have to issue new common stock and will incur a flotation cost of $2\mathrm{.}00\%.$ At the end of the year, the project is expected to produce a cash inflow of $$595,000.$ The rate of return that White Lion expects to earn on its project $($net of its flotation costs$)$ is $($rounded to two decimal places$).$

Alpha Moose Transporters has a current stock price of $$22\mathrm{.}35$ per share, and is expected to pay a per$-$share dividend of $$1\mathrm{.}36$ at the end of the year. The company$$s earnings$$ and dividends$$ growth rate are expected to grow at the constant rate of $8\mathrm{.}70\%$ into the foreseeable future. If Alpha Moose expects to incur flotation costs of $5\mathrm{.}00\%$ of the value of its newly$-$raised equity funds, then the flotation$-$adjusted $($net$)$ cost of its new common stock $($rounded to two decimal places$)$ should be $.$

White Lion Homebuilders Co$.$s addition to earnings for this year is expected to be $$745,000.$ Its target capital structure consists of $35\%$ debt, $5\%$ preferred, and $60\%$ equity. Determine White Lion Homebuilders$$s retained earnings breakpoint:

$$1,179,584$

$$2,128,571$

$$1,241,667$

$$1,117,500$