Cost of external equity capital

Assignment Help Financial Management
Reference no: EM131315824

The cost of external equity capital is greater than the cost of retained earnings because of

A) flotation costs on new equity.

B) increasing marginal tax rates.

C) higher dividends.

D) greater risk for shareholders

Reference no: EM131315824

Questions Cloud

Missing amounts in each of the eight case situations : Fill in the missing amounts in each of the eight case situations below. Each case is independent of the others. Assume that only one product is being sold in each of the four following case situations: Case 1: Unit sold 89,500 Sales 266,000 Variable ..
Break-even point in unit sales using the equation method : Mauro Products distributes a single product, a woven basket whose selling price is $13 and whose variable expense is $10.14 per unit. The company’s monthly fixed expense is $6,578. 1. Solve for the company’s break-even point in unit sales using the e..
About the current share price : Lohn Corporation is expected to pay the following dividends over the next four years: $17, $13, $12, and $7.50. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 1..
What stock market and history of stock marke : What Stock Market? History of Stock Market: The importance of stock market: Why people buy shares? What is the role of organization to keep the investors interested in their shares?
Cost of external equity capital : The cost of external equity capital is greater than the cost of retained earnings because of
The disadvantage of the irr method is that : The disadvantage of the IRR method is that
What is the future value of semi-annual payments : What is the future value of semi-annual payments of $6,500 for eight years at 12 percent? 9. You are considering an investment which would entail $5,000 payments each year for 20years. The investment will pay 7 percent interest. How much will this in..
Borrowed some money at eight percent per annum : You borrowed some money at 8 percent per annum. You repay the loan by making three annual payments of $ 139 (first payment made at t = 1), followed by five annual payments of $ 413 , followed by four annual payments of $ 715 . How much did you borrow..
Foreign denominated asset : A New Zealand company has a foreign denominated asset in United States dollars worth US$600,000 on the 1 July 2016. The US debtor is due to repay this debt to the New Zealand company over the next 12 months. Assume the company are able to partner wit..

Reviews

Write a Review

Financial Management Questions & Answers

  Competitors three d products and general market growth

Maxine Leo, vice president of marketing for 3D-vious Printers, Inc., must decide whether to introduce a mid-priced version of the firm’s 3D printer product line—the 3D X. The 3D X would sell for $3,900 with unit variable costs of $1,800. The fixed co..

  Ideas to discuss in exercise are why did revel go bankrupt

Please discuss Revel casino that was built in Atlantic City, New Jersey and then shortly thereafter became bankrupt. A Toronto based company purchased Revel for five cents on the dollar. The class discussion is centering on what exactly went wrong fo..

  What are the empirical problems involved in testing

What are the empirical problems involved in testing for the effect of capital structure on the value of the firm? - How would the weighted average cost of capital vary with the ratio of debt to total assets, B/(B + S), if the cost of equity remained..

  Approximate after-tax cost of debt for new issue of bonds

The coupon rate on a debt issue is 7%. If the yield to maturity on the debt is 11%, what is the after-tax cost of debt in the weighted average cost of capital if the firm's tax rate is 41%? The coupon rate on an issue of debt is 11%. The yield to mat..

  Option pricing model to price the call option

The current stock price of a company is $68 and the stock is expected to have a dividend yield 3% per year. The instantaneous risk free rate of return is 3.5%. The instantaneous standard deviation of its stock is 35%. Using the Black-Scholes Option P..

  Moody industrial supply is considering perpetual project

Moody Industrial Supply is considering a perpetual project that will produce annual cash revenues of $382,000. The annual cash costs are $313,000 and the initial investment is $350,000. The firm is an all-equity firm with a tax rate of 35 percent and..

  About the reducing the dividends

Railway Cabooses just paid its annual dividend of $1.10 per share. The company has been reducing the dividends by 11 percent each year. How much are you willing to pay today to purchase stock in this company if your required rate of return is 15 perc..

  What is the average accounts receivable figure

Skye Flyer, Inc., has weekly credit sales of $15,900, and the average collection period is 61 days. What is the average accounts receivable figure?

  A project requires an initial cash outlay

A project requires an initial cash outlay of $60,000 and has expected cash inflows of $15,000 annually for 8 years. The cost of capital is 10%. What is the project’s IRR? Show your work.

  Should you exercise or not exercise the call-explain

Suppose you paid $5 for a $20 call option (strike price = $20) months ago. This option expires today and the current stock price is $22. If you exercise the call, the call payoff is $2 (=$22 - $20) and the profit will $2 - $5 = -$3. Should you exerci..

  Personal tax rate for the firms investors

New Business is just being formed by 10 investors, each of whom will own 10% of the business. The firm is expected to earn $1,000,000 before taxes each year. The corporate tax rate is 34% and the personal tax rate for the firm's investors is 35%.

  Operating leverage at accounting break-even level of output

Consider a four-year project with the following information: initial fixed asset investment = $560,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $28; What is the degree of operating leverage at the accou..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd