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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. 7.9%
C. 15.8%
D. 9.7%
E. 14.3%
Answer: C
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 end user should use another type of browser.
B. The response is compressed.
C. The Content-Type has value "iso-8859-200".
D. The response is chunked.
Answer: C
NEW QUESTION: 3
A Cluster XL configuration is limited to ___ members.
A. 0
B. 1
C. 2
D. There is no limit.
Answer: B
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