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Holly's is currently an all equity firm that has 10,000 shares of stock outstanding at a market price of $60 a share. The firm has decided to leverage its operations by reduce outstanding stocks and issuing $120,000 of debt at an interest rate of 9.5 percent. Assume the stock price remains unchanged after the change in capital structure, how many shares remaining after the change in capital structure?
A. 10,000 shares
B. 60, 000 shares
C. 8,000 shares
D. 5,000 shares
E. 4,800 shares
As a general rule, the capital structure that maximizes firm value, or stock price also maximizes the expected rate of return on equity (ROE), maximizes the weighted average cost of capital (WACC)
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A share of preferred stock costs $75.00 and the next dividend is to be paid in 1 year. The expected annual return on this stock is 15%. In excel, compute and graph the dividend growth rate, as implied by expected dividend amounts (to be paid one year..
Describe the relationship between a corporation’s common stockholders, its board of directors, and its chief executive officer (CEO).
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