Question Details

Schnusenberg Corporation






1. Which of the following statements is CORRECT?
a.	If a company has two classes of common stock, Class A and Class B, the stocks may pay different dividends, but under all state charters the two classes must have the same voting rights.
b.	The preemptive right gives stockholders the right to approve or disapprove of a merger between their company and some other company.
c.	The preemptive right is a provision in the corporate charter that gives common stockholders the right to purchase (on a pro rata basis) new issues of the firm's common stock.
d.	The stock valuation model, P0 = D1/(rs - g), cannot be used for firms that have negative growth rates.

 
2.	Gary, Inc. is planning to use retained earrings to finance anticipated capital expenditures. The beta coefficient for Gary's stock is 1.157. The risk free rate of interest is 8.5%, and the market return is estimated at 12.4%. If a new issue of common stock where used in the model, the flotation costs would be 7%.By using the capital asset pricing model (CAPM) equation [R = RF + (RM - RF)], the cost of using retained earnings to finance the capital expenditures is
 
a.	13.21%				
b.	12.40%
c.	12.99%				
d.	14.26%
 

3.	KG Inc. has the following mix of funds and costs:
	Type			Amount	Cost
	Debt		           P150,000	18%
	Preferred stock		500,000		15
	Common equity		700,000		12
	Total funds                P1,350,000

What is KG- cost of capital?
 
a.	13.78%					
b.	15.22%
c.	12.22%					
d.	13.22%
 

4.	Newmass, Inc. paid cash dividends to its common shareholders over the past 12 months at P2.20 per share. The current market value of the common stocks is P40 per share and investors are anticipating the common dividends to grow at a rate of  6% annually. The cost to issue new common stocks will be 5% of the market value.  The cost of new common stock will be 
 
a.	11.50% 				
b.	11 .83%
c.	7.9%					
d.	2.14%
 

5.	Schnusenberg Corporation just paid a dividend of D0 = P0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future.  The company's beta is 1.25, the required return on the market is 10.50%, and the risk-free rate is 4.50%.  What is the company's current stock price?
 
a.	P14.52
b.	P14.89
c.	P15.26
d.	P15.64
 




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