Question
Sunny Day Manufacturing Company is considering investing in a one-year project that requires an initial investment of $500,000. To do so, it will have to
Sunny Day Manufacturing Company is considering investing in a one-year project that requires an initial investment of $500,000. 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 Sunny Day expects to earn on its project (net of its flotation costs) is7.06% (rounded to two decimal places).
White Lion Homebuilders 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 companys earnings and dividends growth rate are expected to grow at the constant rate of 5.20% into the foreseeable future. If White Lion expects to incur flotation costs of 5.00% 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 be9.49% .
Sunny Day Manufacturing Company Co.s addition to earnings for this year is expected to be $420,000. Its target capital structure consists of 50% debt, 5% preferred, and 45% equity. Determine Sunny Day Manufacturing Companys retained earnings breakpoint:
$933,333
$1,166,666
$840,000
$980,000
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