Ask Question, Ask an Expert


Ask Basic Finance Expert

The management of a conservative firm has adopted a policy of never letting debt exceed 30 percent of total financing. The firm will earn $10,000,000 but distribute 40 percent in dividends, so the firm will have $6,000,000 to add to retained earnings. Currently the price of the stock is $50, the company pays a $2 per share dividend, which is expected to grow annually at 10 percent. If the company sells new shares, the net to the company will be $48. Given this information, what is the

a) cost of retained earnings?

b) cost of new common stock?

The rate of interest on the firm's long-term debt is 10 percent and the firm is in the 32 percent income tax bracket. If the firm issues more than $2,400,000, the interest rate will rise to 11 percent. Given this information, what is the

c) cost of debt;

d) cost of debt in excess of $2,400,000?


Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M926089

Have any Question? 

Related Questions in Basic Finance

What is the theoretical justification for the laffer

What is the theoretical justification for the Laffer curve? Basing your view on the empirical evidence described in the text, should the United States raise or lower its tax rates in order to increase tax revenues? Expla ...

Wholesale hanks hardware had beginning retained earnings of

Wholesale Hank's Hardware had beginning retained earnings of $18,670. During the year, the company paid dividends of $2,050, and reported total sales of $203,846. Their tax rate is 35 percent. For the year, costs were $8 ...

Linda from problem 44 is now 18 years old five years have

Linda (from problem 44) is now 18 years old (five years have passed), and she wants to get married instead of going to school. Your parents have accumulated the necessary funds for her education. Instead of her schooling ...

How money market rates may respond to prevailing conditions

How Money Market Rates May Respond to Prevailing Conditions : How have money market rates changed since the beginning of the semester? Consider the current economic conditions. Do you think money market rates will increa ...

Choice of monetary policywhen does the fed use a

Choice of Monetary Policy: When does the Fed use a stimulative monetary policy, and when does it use a restrictive monetary policy? What is a criticism of a stimulative monetary policy? What is the risk of using a moneta ...

Baker industries net income is 25000 its interest expense

Baker Industries' net income is $25,000, its interest expense is $6,000, and its tax rate is 45%. Its notes payable equals $25,000, long-term debt equals $75,000, and common equity equals $260,000. The firm finances with ...

Predicting the feds actions assume the following conditions

Predicting the Fed's Actions : Assume the following conditions. The last time the FOMC met, it decided to raise interest rates. At that time, economic growth was very strong and so inflation was relatively high. Since th ...

In 2006 ben bernanke said the goals of strong output growth

In 2006, Ben Bernanke said the goals of strong output growth and low inflation "are almost always consistent with each other." Alan Greenspan once called the trade-off between output and inflation "ephemeral." a. Are the ...

Assume that you are interested to evaluate the stock of

Assume that you are interested to evaluate the stock of Woolworths Limited. Go to Morningstar DatAnalysis Premium ( (a) List three comparable firm ...

Impact of the economy explain how the expected interest

Impact of the Economy : Explain how the expected interest rate in one year depends on your expectation of economic growth and inflation.

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate