Cost of new stock exceed the cost of retained earnings

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Reference no: EM131889842

1. Eakins Inc.'s common stock currently sells for $15.00 per share, the company expects to earn $2.75 per share during the current year, its expected payout ratio is 70%, and its expected constant growth rate is 6.00%. New stock can be sold to the public at the current price, but a flotation cost of 8% would be incurred. By how much would the cost of new stock exceed the cost of retained earnings? Do not round your intermediate calculations.

a. 1.45%

b. 0.67%

c. 0.78%

d. 0.89%

e. 1.12%

2. Keys Printing plans to issue a $1,000 par value, 20-year noncallable bond with a 7.00% annual coupon, paid semiannually. The company's marginal tax rate is 40.00%, but Congress is considering a change in the corporate tax rate to 45.00%. By how much would the component cost of debt used to calculate the WACC change if the new tax rate was adopted?

a. –0.36%

b. –0.42%

c. –0.44%

d. –0.35%

e. –0.30%

Reference no: EM131889842

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