Royal Mediterranean Cruise Line’s common stock is selling for $22 per share. The

Question

Royal Mediterranean Cruise Line’s common stock is selling for $22 per share. The
last dividend was $1.20, and dividends are expected to grow at a 6% annual rate.
Flotation costs on new stock sales are 5% of the selling price. What is the cost of
Royal’s retained earnings?

a. 12.09%
b. 11.45%
c. 11.78%
d. 5.73%

All of the following factors support the proposition that dividend policy matters
except:
a. perfect capital markets
b. investors desire to minimize and defer taxes, and capital gains get preferential tax
treatment over dividend income
c. flotation costs significantly increase the cost of new common stock compared to retained earnings
d. information asymmetry exists between shareholders and managers

A firm’s cash position would most likely be hurt by

a. retiring outstanding debt.
b. establishing stricter (shorter) credit terms.
c. increasing the net profit margin.
d. decreasing excess inventory.

Explanation / Answer

B The formula is dividends/stock price plus the growth rate 1.20/22 +.06= .1145 D The others should definitely be a factor. A Retiring debt uses cash and hurts your cash position

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.