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Company XYZ will pay in exactly one year $4 in dividends per share to its common stock shareholders. In exactly one year it will pay
Company XYZ will pay in exactly one year $4 in dividends per share to its common stock shareholders. In exactly one year it will pay $2 in dividends per share to holders of its preferred stock. The flotation costs on a per share basis for common stock are $7 and for preferred stock are $2. Common stock dividends are expected to grow 5% each year-preferred stock dividends will not change. The company can issue $1,000-par-value, 12% coupon, ten-year bonds that can be sold for $950 each. Flotation costs for each bond equal $30. The current per share prices for common stock and preferred stock are $19 and $11, respectively. The company's tax rate is 40%. The company's target capital structure is 70% retained earnings, 20% new preferred stock issues, and 10% new debt (bonds). In the determination of rn which better accounts for flotation costs? Select one: a. Constant Growth Model b. CAPM c. Zero Growth Model d. A and C e. A and B Clear my choice
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