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.

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.

False: Flotation costs are additional costs associated with raising 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 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 $595,000. 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 $2.03 at the end of the year. The companys earnings and dividends growth rate are expected to grow at the constant rate of 8.70% into the foreseeable future. If Sunny Day 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 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 Transporterss retained earnings breakpoint:

$1,120,000

$886,666

$1,073,333

$933,333