1. As the winner of a contest, you are now CFO for the day for Maguire Inc. and your day’s job involves raising capital for expansion. Maguire’s common stock currently sells for $45.00 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 common from retained earnings?

0.09%

0.19%

0.37%

0.56%

0.84%

2. It is easier to place a valuation on stocks than it is for bonds because the future income stream of stocks is better defined and more predictable.

True

False

3. One of the major disadvantages of a common currency is that the use of that monetary unit tends to raise transactions costs.

True

False