11) Generally, for a corporation, the order of capital cost from the least expen

Question

11) Generally, for a corporation, the order of capital cost from the least expensive to the most expe a) new common stock, retained earnings, preferred stock, long-term debe b) common stock, preferred stock, long-term debt, short-term debt e) preferred stock, new common stocks, common stock, retained earnings d) long-term debt, preferred stock, retained earnings, new common stock 12) Nico Trading Corporation i is considering issuing long-term debt. The debt would be in a form of 30-year corporate bonds with a them at $950 each. In f firm's corporate tax rate is 35%. Given this information, the after-tax cost of debt for ha e ots1 000 and a l 0% annual coupe n rate. In order to sell the bonds, the firm will have to price inaddition, the firm will have to pay flotation costs equal to 5% of the par value of each bond. The 50 Nico Trading would be a) 7.26% b) 11.17% c) 10.00% d) 9.00% 13) When a firm takes on additional debt, it increases its leverage, which results in -return and -risk. a) decreased; increased b) decreased; decreased c) increased, increased d) increased; decreased 14) A firm has determined that it can issue preferred stock at $11S per share. The stock will pay an annual dividend of $12 per share. The cost of issuing and selling the preferred stock is $3 per share. Hence, the cost of the preferred stock financing for the firm would be a) 7.83 percent. b) 10.43 percent c) 10.71 percent d) 2.91 percent 15) A firm's common stock is currently selling at $25 per share. This year, the firm paid $1.90 in dividends per common stock. The growth rate of the firm's dividends has stabilized at 5% per year. Given this information, ind he f rm's cost of financing using the retained earnings. a) 7.6 percent b) 8 percent c) 0.13 percent d) 12.98 percent 16) Find the firm's cost of using the retained earnings, if the return on a 10-year U.S. Treasury Bill is 5% APR, the 10- year average return on a market portfolio is 15% APR and the firm's beta is 1.3? a) 11.5% b) 18% c) 1096 d) 19.5% 17) What would be the cost of capital from issuing new common stock for XYZ Corp if the firm paid a dividend of $4.25 per share this year, the firm's common stock is currently selling for $55.00 per share, dividends are expected to grow at 8.5% per year indefinitely, and the new common stock underpncing and issuance costs will total $625 per share? a) 17.96% b) 9.46% c) 17.22% d) 16.23%

Explanation / Answer

11
long term debt,preferred stock, retained earnings, new common stock

12

13
increased, increased

14
cost of preferred stock=Dividend/(Price-cost of issuing)=12/112=10.71%

15
cost of equity=Expected Dividend/Price+growth rate=1.9*1.05/25+5%=12.98%

16
cost of equity=risk free rate+beta*(market return-risk free rate)=5%+1.3*(10%-5%)=11.5%

17
cost of equity=4.25*1.085/(55-6.25)+8.5%=17.96%

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