Question
A firm pays its bondholders a 12% return. Its cost of retained earnings may be estimated by: a. adding one to three percentage points to
A firm pays its bondholders a 12% return. Its cost of retained earnings may be estimated by:
| a. | adding one to three percentage points to the 12% pretax cost of debt. | |
| b. | adding three to five percentage points to the 12% pretax cost of debt. | |
| c. | multiplying the firm's beta by three to five percentage points and adding it to the 12% pretax cost of debt. | |
| d. | None of the above |
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Your company is expected to earn $4.0 million in net income next year of which it will pay out 40% in dividends. If equity represents 50% of your capital, what is the breakpoint on the MCC where new stock will have to be issued?
a. $2.4 million
b. $4.8 million
c. $4.0 million
d. $3.2 million
e. $8.0 million
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Financial Derivative Investments An Introduction To Structured Products
Authors: Richard D. Bateson
1st Edition
1848167113, 9781848167117
