Determining company-s dfl


1) Analysts of IMC Corporation have pointed out that company is expected to grow at 5% rate for as long as it is in business. Presently ICM's stock is selling for $70 per share. Most current dividend paid by company was= $5.60 per share. If ICM issues new common stock, it will incur flotation costs equal to 7%. ICM's marginal tax rate is 35%. Determine its cost of retained earnings-that is-its retained earnings? Compute ICM's cost of new equity?
2) Net operating income for Bear Investment Company this year is= $80,000. In the year, company paid= $20,000 in interest on its debt and $25,000 in dividends to its common stockholders, If BIC's marginal tax rate is= 40%, determine the company's DFL?

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Finance Basics: Determining company-s dfl
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