17.) Jiffy Co. expects to pay a dividend of $3.00 per share in one year. The cur

Question

17.) Jiffy Co. expects to pay a dividend of $3.00 per share in one year. The current price of Jiffy common stock is $60 per share. Flotation costs are $3.00 per share when Jiffy issues new stock. What is the cost of internal common equity if the long-term growth in dividends is projected to be 8 percent indefinitely? Select one:

a. 14 percent

b. 13 percent

c. 15 percent

d. 16 percent

35.) Which of the following statements about the internal rate of return (IRR) is true?

Select one:

a. It is greater than the modified internal rate of return if the discount rate is higher than the IRR.

b. It fully considers the time value of money.

c. It never gives conflicting answers.

d. It has the most conservative and realistic reinvestment assumption.

Explanation / Answer

17.Answer is B13%, explained below:

Flotaion cost doesn't impact the cost of existing equity and it only impact the cost of new equity. The question asks about cost of existing equity, hence

Cost of equity ={ Expected dividend in one year/ Stock price} + growth rate = 3 /60% + 8%

Cost of existing equity (Retained earnings) = 13%

35.

B)It fully considers the time value of money.

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