Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 9, Problem 4MC
- d. (1) What are the two primary ways companies raise common equity?
- (2) Why is there a cost associated with reinvested earnings?
- (3) Jana doesn’t plan to issue new shares of common stock. Using the
CAPM approach, what is Jana’s estimatedcost of equity ?
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
What does it mean when a company has zero net income but its stock price has increased? How do you recognize the change under the equity method?
Which of the following is the reason that preferred dividends declared during the period are deducted from net income in calculating return on common stockholders’ equity?
a.
Preferred dividends are not paid from net income.
b.
Preferred dividends are not a part of stockholders’ equity.
c.
Preferred dividends are not paid until all common stockholders have received their dividends, so preferred dividends are not relevant in the formula and so must be taken out of the equation.
d.
Preferred dividends will reduce the amount of income available for distribution to common stockholders.
Choose the letter of the correct answer
2. When the cost model/method is used to account for an investment, which of the following would not result in an adjustment to the amount recorded in the investment account?
A. The investee declares a regular dividend
B. The investor sells some of the stock
C. The investee declares a liquidating dividend
D. The stock’s market value decreases to a point where is it below the investor’s cost
Chapter 9 Solutions
Financial Management: Theory & Practice
Ch. 9 - Define each of the following terms: a. Weighted...Ch. 9 - Prob. 2QCh. 9 - Prob. 3QCh. 9 - Distinguish between beta (i.e., market) risk,...Ch. 9 - Suppose a firm estimates its overall cost of...Ch. 9 - Calculate the after-tax cost of debt under each of...Ch. 9 - LL Incorporateds currently outstanding 11% coupon...Ch. 9 - Duggins Veterinary Supplies can issue perpetual...Ch. 9 - Prob. 4PCh. 9 - Summerdahl Resorts common stock is currently...
Ch. 9 - Booher Book Stores has a beta of 0.8. The yield on...Ch. 9 - Prob. 7PCh. 9 - David Ortiz Motors has a target capital structure...Ch. 9 - A companys 6% coupon rate, semiannual payment,...Ch. 9 - The earnings, dividends, and stock price of Shelby...Ch. 9 - Radon Homes’ current EPS is $6.50. It was $4.42 5...Ch. 9 - Spencer Supply’s stock is currently selling for...Ch. 9 - Prob. 13PCh. 9 - Prob. 14PCh. 9 - On January 1, the total market value of the...Ch. 9 - Suppose the Schoof Company has this book value...Ch. 9 - The following table gives the current balance...Ch. 9 - Start with the partial model in the file Ch09 P18...Ch. 9 - During the last few years, Jana Industries has...Ch. 9 - b. What is the market interest rate on Jana’s...Ch. 9 - Prob. 3MCCh. 9 - d. (1) What are the two primary ways companies...Ch. 9 - What is the estimated cost of equity using the...Ch. 9 - f. What is the cost of equity based on the...Ch. 9 - g. What is your final estimate for the cost of...Ch. 9 - h. Janas target capital structure is 30% long-term...Ch. 9 - i. Use Janas target weights to calculate the...Ch. 9 - Prob. 10MCCh. 9 - k. Should the company use its overall WACC as the...Ch. 9 - l. What procedures can be used to estimate the...Ch. 9 - m. Jana is interested in establishing a new...Ch. 9 - n. What are three types of project risk? How can...Ch. 9 - o. Explain in words why new common stock that is...Ch. 9 - p. What four common mistakes in estimating the...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Which of the following dividends does not reduce total stockholders' equity? O Liquidating dividends. O Cash dividends. O Stock dividends. O All of these answer choices reduce total stockholders' equity.arrow_forwardQ2. What is the different between right issue and private placements? What is included in underwriting expenses? Q3. When do dividends become legal debt of the company? – Explain. Why preference share dividend is cumulative?arrow_forwardWhich of the following transactions will increase thereturn on equity?a. Declare and issue a stock dividend.b. Split the stock 2-for-1.c. Repurchase the company’s stock.d. None of the above.arrow_forward
- If the stock market is efficient, why do companies manage their earnings? O To avoid violating debt covenants. O To receive bonuses based on reported earnings. O Because companies do not believe the Efficient Market Hypothesis. O All of the above.arrow_forwardWhich of the following statements is true? I. The formula for the return on equity is: Return on equity = Net income ÷ Average total stockholders' equity. II. When computing the return on equity, retained earnings should be excluded from the average total stockholders' equity.arrow_forwardWhich is not one of the three sources of return for an investor in a common stock? A-debt repurchase B-dividend C-earnings growth d-valuation changearrow_forward
- Which of the following events would not improve (increase) a company’s return on equity? (Assume all else remains the same.) a. Retirement of long-term debt with cash b. Sale of common stock for cash c. Reduction in operating expenses Select one: b a and b a and c None of the events would improve a company’s return on equity. a c b and c plzz explain properlyarrow_forwardWhich one of the following statements about ordinary equity is correct? a. Shareholders have a residual claim to the firm's assets. b. Shareholders are repaid an ordinary share's value on the share's maturity date. c. Shareholders' return is always positive. d. Equity that is listed on the ASX must pay a dividend.arrow_forwardDividend policy determines the ratio between the earnings distributed to shareholders and the earnings retained in the company. Should the cash be reinvested in business operations or should it be paid out to investors in equity? The decision might seem simple, but it provokes a surprising number of controversies. a) In relation to the above, discuss the different dividend policy theories. b) Explain the Gordon's Dividend Valuation Model.arrow_forward
- Which factors influence the dividend policy of a company? Also please locate and briefly post the dividend policy of a publicly held company of your choosing and discuss the positive and negative aspects of the policy. What assumptions about the financial health of the business can you derive from the dividend policy? Would the dividend policy make you more or less likely to invest in the company?arrow_forwardSince the firm issued new stocks, I calculated two cost of retained earnings (one is rs which is the cost of internal equity or the firm's retained earnings, while the other is re or the cost of the external equity by raising issuing new stock), what should I use in solving the WACC?arrow_forwardWhich of the following statements is CORRECT? Group of answer choices The component cost of preferred stock is expressed as rp(1 - T). This follows because preferred stock dividends are treated as fixed charges, and as such they can be deducted by the issuer for tax purposes. A cost should be assigned to retained earnings due to the opportunity cost principle, which refers to the fact that the firm’s stockholders would themselves expect to earn a return on earnings that were paid out rather than retained and reinvested. No cost should be assigned to retained earnings because the firm does not have to pay anything to raise them. They are generated as cash flows by operating assets that were raised in the past, hence they are “free.” Suppose a firm has been losing money and thus is not paying taxes, and this situation is expected to persist into the foreseeable future. In this case, the firm’s before-tax and after-tax costs of debt for purposes of calculating the WACC will both be…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Survey of Accounting (Accounting I)
Accounting
ISBN:9781305961883
Author:Carl Warren
Publisher:Cengage Learning
Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY