Johnson Production Company paid a dividend yesterday of 3.50 per share. The dividend is
expected to grow at a constant rate of 10 per year. The price of KayCee's common stock today is
40 per share.
If KayCee decides to issue new common stock, flotation costs will equal 4.00 per
share. KayCee's marginal tax rate is 35. Based on the above information, the cost of retained
earnings is
A) 26.41. B) 19.63. C) 17.55. D) 20.09.
Question 2
Bart's Moving Company bonds have a 11 coupon rate. Interest is paid semiannually. The bonds
have a par value of 1,000 and will mature 8 years from now.
Compute the value of Bart's Moving
Company bonds if investors' required rate of return is 9.5.
A) 1,197.27 B) 1,098.99 C) 1,082.75 D) 1,133.05
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