If a firm needs additional capital from equity sources once its retained earnings breakpoint is reached, it will have to raise the capital by issuing new common stock. O False: Firms raise capital from retained earnings only when they cannot issue new common stock due to market conditions outside of their control. O True: Firms will raise all the equity they can from retained earnings before issuing new common stock, because capital from retained earnings is cheaper than capital raised from issuing new common stock. Alpha Moose Transporters is considering investing in a one-year project that requires an initial investment of $500,000. 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 Alpha Moose expects to earn on its project (net of its flotation costs) is (rounded to two decimal places). Sunny Day Manufacturing Company has a current stock price of $33.35 per share, and is expected to pay a per-share dividend of $2.45 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 Sunny Day expects to incur flotation costs of 6.50% 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 Alpha Moose Transporters 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 Alpha Moose Transporters's retained earnings breakpoint: O $933,333 $980,000 $1,120,000 $1,026,666 Consider the case of Galbraith Enterprises: At the present time, Galbraith Enterprises does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Galbraith has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $14 per share. If the investors pay $130.45 per share for their investment, then Galbraith's cost of preferred stock (rounded to four decimal places) will be 11.2687% 9.6589% 10.7321% 9.1223% Preferred stock is a hybrid security, because it has some characteristics typical of debt and others typical of equity. The following table lists various characteristics of preferred stock. Determine which of these characteristics is consistent with debt and which is consistent with equity Characteristics Debt Equity Dividends are fixed. Failure to pay a preferred dividend does not send the firm into bankruptcy