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Question The reason why new common stock

Question : Question The reason why new common stock : 5981

Question

The reason why new common stock that is raised externally has a higher percentage cost than equity that is raised internally as retained earnings is because?

sunk costs

none of the above

flotation costs

size of offering

Tree Cutters Inc., a manufacturer of power tools, decides to offer a rebate of $100 on its 18-inch mid-range chain saw, which currently has a retail price of $470. The firm’s marketers estimate that, as a result of the promotional rebate, sales of this model will increase from 50,000 to 80,000 units next year. The profit margin for Tree Cutters Inc., before the rebate is $150 per unit. Based on the given information, is this decision to give the rebate a wise one?

Yes, since the benefits are $1.5 million more than the costs.

No, since costs are $5.0 million more than benefits.

Yes, since the benefits are $0.2 million more than the costs.

No, since costs are $3.5 million more than benefits.

You grandfather offers to sell you his used 1958 Cadillac Eldorado for $50,000. You note that very similar cars are selling on the open market for $90,000. You don’t care for classic care and would really rather buy a new Ford Explorer for $356,000. What is the net value of buying the Cadillac?

$35,000, since this is the value of the car that you really want to buy.

$90,000, since the Cadillac could be sold for this price.

$50,000, since the Cadillac could be bought for this price.

$40,000, since this is the difference between the purchase and resale price of the Cadillac.

 

a.

sunk costs

 

b.

none of the above

 

c.

flotation costs

 

d.

size of offering

 

Solution
5 (1 Ratings )

Solved
Finance 8 Months Ago 104 Views
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