1. As the winner of a contest, you are now CFO for the day for Maguire Inc. and your day’s job involves raising capital for expansion. Maguire’s common stock currently sells for $45.00 per share, the company expects to earn $2.75 per share during the current year, its expected payout ratio is 70%, and its expected constant growth rate is 6.00%. New stock can be sold to the public at the current price, but a flotation cost of 8% would be incurred. By how much would the cost of new stock exceed the cost of common from retained earnings?
0.09%
0.19%
0.37%
0.56%
0.84%
2. It is easier to place a valuation on stocks than it is for bonds because the future income stream of stocks is better defined and more predictable.
True
False
3. One of the major disadvantages of a common currency is that the use of that monetary unit tends to raise transactions costs.
True
False