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NEW QUESTION: 1
Allison Engines Corporation has established a target capital structure of 40 percent debt and 60 percent common equity. The firm expects to earn $600 in after-tax income during the coming year, and it will retain
40 percent of those earnings. The current market price of the firm's stock is $28; its last dividend was
$2.20, and its expected dividend growth rate is 6 percent. Allison can issue new common stock at a 15 percent flotation cost. What will Allison's marginal cost of equity capital (not the WACC) be if it must fund a capital budget requiring $600 in total new capital?
A. 13.9%
B. 15.8%
C. 7.9%
D. 14.3%
E. 9.7%
Answer: B
Explanation:
Explanation/Reference:
Explanation:
Calculate the retained earnings break point:
Given:
Net income = $600; Debt = 0.4; Equity = 0.6; Dividend payout = 0.6.
Break point(RE) = $600(1 - 0.6)/0.6 = $400.
Allison will need new equity capital; capital budget exceeds Break point(RE).
Use the dividend growth model to calculate k(s):
k(s) = D1/Po + g = 2.2(1.06)/28(1-.15) + .06 = 0.0979 + 0.06 = 0.1579 = 15.8%.
k(s) = component cost of retained earnings or internal equity.
NEW QUESTION: 2
An LTM Specialist discovers an issue with the custom http monitor that returns in a false positive status.
The end users cannot get the right website, but thehttp monitor marks the pool member UP.
What is causing the false positive result?
A. The Content-Type has value "iso-8859-200".
B. The end user should use another type of browser.
C. The response is chunked.
D. The response is compressed.
Answer: A
NEW QUESTION: 3
A Cluster XL configuration is limited to ___ members.
A. There is no limit.
B. 0
C. 1
D. 2
Answer: D
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