Reference no: EM13721846
1. Adventure Outfitter Corp. can sell common stock for $27 per share and its investors require a 17% return. However, the administrative or flotation costs associated with selling the stock amount to $2.70 per share. What is the cost of capital for Adventure Outfitter if the corporation raises money by selling common stock?
a. 27.00%
b. 18.89%
2. Due to changes in regulatory requirements, the transactions costs associated with selling corporate securities increased by $1 per share. This change will
a. cause the cost of capital to increase.
b. cause the cost of capital to decrease.
3. JPR Company's preferred stock is currently selling for $28.00, and pays a perpetual annual dividend of $2.00 per share. Underwriters of a new issue of preferred stock would charge $3 per share in flotation costs. The firm's tax rate is 40%. Compute the cost of new preferred stock for JPR.
a. 8.00%
b. 4.80%
4. A firm's weighted average cost of capital is determined using all of the following inputs EXCEPT
a. . the firm's after tax cost of debt.
b.. the probability distribution of expected returns
5. Which of the following should NOT be considered when calculating a firm's WACC?
a. cost of carrying inventory
b. cost of preferred stock
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: Adventure Outfitter Corp. can sell common stock for $27 per share and its investors require a 17% return. However, the administrative or flotation costs associated with selling the stock amount to $2.70 per share. What is the cost of capital for Adve..
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