25. Schalheim Sisters Inc. has always paid out all of its earnings as dividends,

Question

25.

Schalheim Sisters Inc. has always paid out all of its earnings as dividends, hence the firm has no retained earnings. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC?

a. The flotation costs associated with issuing preferred stock increase. b. The company's beta increases. c. The market risk premium declines. d. Expected inflation increases. e. The flotation costs associated with issuing new common stock increase

Explanation / Answer

correct otpion is "C" -the market risk premium declines

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