Author Question: Grunewald Co.s common stock currently sells for $70 per share, the company expects to earn $4 per ... (Read 88 times)

Adc3669 · **on:** Aug 7, 2023

Question 1

For a typical firm, which sequence is correct? All rates are after taxes, and assume the firm operates at its target capital structure.

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WACC > r_d> r_e> r_s

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r_d< WACC < r_s< r_e

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WACC < r_s< r_e< r_d

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r_d< r_s< r_e< WACC

Question 2

Grunewald Co.’s common stock currently sells for $70 per share, the company expects to earn $4 per share during the current year, its expected payout ratio is 50%, and its expected constant growth rate is 8%. New stock can be sold to the public at the current price, but a flotation cost of 10% would be incurred. By how much would the cost of new stock exceed the cost of retained earnings?

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0.25%

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0.31%

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0.38%

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0.45%

LynellDool · **Reply #1 on:** Aug 7, 2023

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