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. Alpha Moose Transporters 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 2.00%. At the end of the year, the project is expected to produce a cash inflow of $550,000. The rate of return that Alpha Moose expects to earn on its project (net of its flotation costs) is (rounded to two decimal places). Sunny Day Manufacturing Company has a current stock price of $33.35 per share, and is expected to pay a per-share dividend of $1.36 at the end of the year. The company's earnings and dividends' growth rate are expected to grow at the constant rate of 9.40 % into the foreseeable future. If Sunny Day expects to incur flotation costs of 6.50% 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 Alpha Moose Transporters Co.'s addition to earnings for this year is expected to be $857,000. Its target capital structure consists of 35% debt, 5% preferred, and 60% equity. Determine Alpha Moose Transporters's retained earnings breakpoint: 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. Alpha Moose Transporters 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 2.00%. At the end of the year, the project is expected to produce a cash inflow of $550,000. The rate of return that Alpha Moose expects to earn on its project (net of its flotation costs) is_ (rounded to two decimal places). Sunny Day Manufacturing Company has a current stock price of $33.35 per share, and is 17.85 % the year. The company's earnings and dividends' growth rate are expected to grow at the Day expects to incur flotation costs of 6.50% of the value of its newly-raised equity funds, 14.87% stock (rounded to two decimal places) should be pay a per-share dividend of $1.36 at the end of te of 9.40% into the foreseeable future. If Sunny otation-adjusted (net) cost of its new common 11.90% Alpha Moose Transporters Co.'s addition to earnings for this year is expected to be $857,00 19.83 %t capital structure consists of 35% debt, 5% preferred, and 60% equity. Determine Alpha Moose Transporters's retained earnings breakpomer Alpha Moose Transporters 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 2.00%. At the end of the year, the project is expected to produce a cash inflow of $550,000. The rate of return that Alpha Moose expects to earn on its project (net of its flotation costs) is (rounded to two decimal places). Sunny Day Manufacturing Company has a current stock price of $33.35 per share, and is expected to pay a per-share dividend of $1.36 at the end of the year. The company's earnings and dividends' growth rate are expected to grow at the constant rate of 9.40 % into the foreseeable future. If Sunny Day expects to incur flotation costs of 6.50% 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 Alpha Moose Transporters Co.'s addition to earning 13.76% year is expected to be $857,000. Its target capital structure consists of 35% debt, 5% preferred, and 60% equity. Determine Alpha Moo ters's retained earnings breakpoint: 11.01% $1,356,916 13.48% $2,448,571 11.70% $1,642,583 $1,428,333 Alpha Moose Transporters Co.'s addition to earnings for this year is expected to be $857,000. Its target capital structure consists of 35% debt, 5% preferred, and 60% equity. Determine Alpha Moose Transporters's retained earnings breakpoint: $1,356,916 $2,448,571 $1,642,583 $1,428,333