Cost of new common stock

represent the fees that firms pay to investment bankers to help them issue 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.

False: Flotation costs are additional costs associated with raising 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 costsimilar to how the after-tax cost of debt is calculated.

Cute Camel Woodcraft Company is considering a one-year project that requires an initial investment of $450,000; however, in raising this capital, Cute Camel will incur an additional flotation cost of 4%. At the end of the year, the project is expected to produce a cash inflow of $540,000. The rate of return that Cute Camel expects to earn on the project after its flotation costs are taken into account is .

Cute Camel has a current stock price of $33.35 and is expected to pay a dividend of $2.45 at the end of next year. The companys growth rate is expected to remain constant at 10%. If the issue's flotation costs are expected to equal 4% of the funds raised, the flotation-cost-adjusted cost of the firm's new common stock is .

Cute Camels addition to earnings for this year is expected to be $857,000. Its target capital structure consists of 35% debt, 5% preferred stock, and 60% common stock. Cute Camel Woodcraft Companys retained earnings breakpoint is (rounded to the nearest whole dollar).