A company expects to earn $23 million in income this coming year. Its target cap
ID: 2779255 • Letter: A
Question
A company expects to earn $23 million in income this coming year. Its target capital structure is 30% debt, 15% preferred stock, and 55% common equity financing. The company normally pays a dividend equal to 26% of its earnings. At what point will its WACC move from one level to the next, based upon the need to issue new common shares, assuming it adheres to its target capital structure? At what total capital investment level? Show your answer in millions of dollars with one decimal point ($34,000,000 you would record as 34.0)
Ultimately, a firm's cost of capital is determined by: (select the best answer)
Its sources of capital
What investments a company makes
What the board of directors of the company decides it should be
Its cost of debt and equity capital
a.Its sources of capital
b.What investments a company makes
c.What the board of directors of the company decides it should be
d.Its cost of debt and equity capital
Explanation / Answer
d
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