1.) Which financing will result in an issuer cost being less that the return bei
ID: 2758204 • Letter: 1
Question
1.) Which financing will result in an issuer cost being less that the return being earned by the investor?
a.Debt
b.Common stock
c.Retained earnings
d.Preferred stock
2.) A company expects to earn $23 million in income this coming year. Its target capital structure is 30% debt, 15% preferred stock, and 55% common equity financing. The company normally pays a dividend equal to 27% of its earnings. At what point will its WACC move from one level to the next, based upon the need to issue new common shares, assuming it adheres to its target capital structure? At what total capital investment level? Show your answer in millions of dollars with one decimal point ($34,000,000 you would record as 34.0)
Explanation / Answer
Earnings retained by the company without distribution of dividends is being issued are considered as retained. These are called plowback profits. These can be used for expansion activities of the company. These will not have any issue costs as these are internally generated.
Hence, correct option is Retained earnings.
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