Question

In: Finance

The identification of the proportions of debt, retained earnings, preferred stock, and common stock used to...

The identification of the proportions of debt, retained earnings, preferred stock, and common stock used to finance a firm’s operations and capital investments is referred to as the:

A. Capital structure decision

B. Financing decision

C. Financial risk decision

D. Capital budgeting decision

New projects should be funded using:

A. The same proportions of debt and equity that finance a firm’s total assets

B. The source of funds (debt or equity) with the lowest cost of capital

C. Debt only

D. Retained earnings, if these are enough to cover the funding of the project

Solutions

Expert Solution

A. Capital structure decision

The capital structure is way how a firm finances its overall fund requirements and growth by using different ways of funds.

B. The source of funds (debt or equity) with the lowest cost of capital

as it will maximize shareholder wealth

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

This question focuses on debt, preferred stock, common stock and retained earnings. Make sure that you...
This question focuses on debt, preferred stock, common stock and retained earnings. Make sure that you provide a complete explanation regarding common stock compared to retained earnings. If we construct a graph that has the cost of capital on the vertical axis and the risk of the firm on the horizontal axis, what does the graph look like? Explain.
Explain and calculate the costs of different capital components—debt, preferred stock, retained earnings, and common stock.
Explain and calculate the costs of different capital components—debt, preferred stock, retained earnings, and common stock.
Explain and calculate the costs of different capital components—debt, preferred stock, retained earnings, and common stock.
Explain and calculate the costs of different capital components—debt, preferred stock, retained earnings, and common stock.
Source of Capital Proportions Long-term debt 30% Preferred stock 5% Common stock equity 65% Debt: The...
Source of Capital Proportions Long-term debt 30% Preferred stock 5% Common stock equity 65% Debt: The firm can sell a 10-year, $1,000 par value, 7 percent bond for $950. A flotation cost of 3percent of the par value would be required in addition to the discount of $50. Preferred Stock: The firm has determined it can issue preferred stock at $45 per share par value. The stock will pay an $6.5 annual dividend. The cost of issuing and selling the...
Given the following information: Percent of capital structure: Preferred stock 20 % Common equity (retained earnings)...
Given the following information: Percent of capital structure: Preferred stock 20 % Common equity (retained earnings) 50 Debt 30 Additional information: Corporate tax rate 40 % Dividend, preferred $ 7.00 Dividend, expected common $ 3.50 Price, preferred $ 98.00 Growth rate 8 % Bond yield 10 % Flotation cost, preferred $ 3.40 Price, common $ 86.00 Calculate the weighted average cost of capital for Digital Processing Inc. (Do not round intermediate calculations. Input your answers as a percent rounded to...
Given the following information: Percent of capital structure: Preferred stock 20 % Common equity (retained earnings)...
Given the following information: Percent of capital structure: Preferred stock 20 % Common equity (retained earnings) 40 Debt 40 Additional information:      Corporate tax rate 24 % Dividend, preferred $ 8.50 Dividend, expected common $ 2.50 Price, preferred $ 105.00 Growth rate 7 % Bond yield 9.5 % Flotation cost, preferred $ 3.60 Price, common $ 75.00 Calculate the weighted average cost of capital for Digital Processing Inc. (Do not round intermediate calculations. Input your answers as a percent rounded...
Target Market Source of Capital Proportions Long-term debt 30% Preferred stock 5% Common stock equity 65%...
Target Market Source of Capital Proportions Long-term debt 30% Preferred stock 5% Common stock equity 65% Debt: The firm can sell a 10-year, $1,000 par value, 7 percent bond for $950. A flotation cost of 3percent of the par value would be required in addition to the discount of $50. Preferred Stock: The firm has determined it can issue preferred stock at $45 per share par value. The stock will pay an $6.5 annual dividend. The cost of issuing and...
Target Market Source of Capital Proportions Long-term debt 30% Preferred stock 5% Common stock equity 65%...
Target Market Source of Capital Proportions Long-term debt 30% Preferred stock 5% Common stock equity 65% Debt: The firm can sell a 10-year, $1,000 par value, 7 percent bond for $950. A flotation cost of 3percent of the par value would be required in addition to the discount of $50. Preferred Stock: The firm has determined it can issue preferred stock at $45 per share par value. The stock will pay an $6.5 annual dividend. The cost of issuing and...
Office Depot had common stock of $6,800 and retained earnings of$5,000 at the beginning of...
Office Depot had common stock of $6,800 and retained earnings of $5,000 at the beginning of the year. At the end of the year, the common stock balance is $7,100 and the retained earnings account balance is $5,500. The net income for the year is $980. What is the retention ratio?
14) a. Shelby Co. has common stock of $2,000 and retained earnings of $5,000 at the...
14) a. Shelby Co. has common stock of $2,000 and retained earnings of $5,000 at the beginning of the year. During the year, the company earned revenues of $10,000 on account; incurred operating expenses of $6,500; collected $8,000 of accounts receivable; borrowed $20,000 from a bank; obtained $8,000 of cash from owners for stock and paid $4,500 of cash to the owners as dividends. How much is the ending balances of common stock and retained earnings ___________ and _______________ ....
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT