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True or False: The following statement accurately describes how firms make decisions related to issuing new common stock. If a firm needs additional capital from
True or False: The following statement accurately describes how firms make decisions related to issuing new common stock.
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.
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.
False: Firms raise capital from retained earnings only when they cannot issue new common stock due to market conditions outside of
their control.
Alpha Moose Transporters is considering investing in a oneyear project that requires an initial investment of $ To do so it will have to issue
new common stock and will incur a flotation cost of At the end of the year, the project is expected to produce a cash inflow of $ 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 $ per share, and is expected to pay a pershare dividend of $ at the end of
the year. The company's eamings' and dividends' growth rate are expected to grow at the constant rate of into the foreseeable future. If Sunny
Day expects to incur flotation costs of of the value of its newlyraised equity funds, then the flotationadjusted net cost of its new common
stock rounded to two decimal places should be grad.
Alpha Moose Transporters Cos addition to earnings for this year is expected to be $ Its target capital structure consists of debt,
preferred, and equity. Determine Alpha Moose Transporters's retained earnings breakpoint:
$
$
$
$
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