Ch 10: Assignment - The Cost of Capital 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. Sunny Day Manufacturing Company is considering investing in a one-year project that requires an initial investment of $450,000. To do so, it will have 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 Sunny Day expects to earn on its project (net of its flotation costs) is (rounded to two decimal places). 13.88% 14.87% 15.86% White Lion Homebuilders has a current std 19.83% 33.35 per share, and is expected to pay a per-share dividend of $2.03 at the end of next 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 White Lion expects to incur flotation costs of 3.750% 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 15.72% Sunny Day Manufacturing Company Co.'s addition to earnings fol this year is expected to be $857,000. Its target capital structure consists of 40% debt, 5% preferred, and 55% equity. Determine Sunny Day Manufacturing Company's retained earnings breakpoint: O $1,791,909 O $1,402,364 $1,558,182 O $1,947,728