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QUESTION: 31

A company with constant earnings and excess cash is considering a significant stock repurchase plan. Which of the following is MOST LIKELY to occur?

Earnings per share will increase, and the number of shares outstanding will stay constant.
Earnings per share will decrease, and the number of shares outstanding will increase.
Earnings per share will increase, and the number of shares outstanding will decrease.
Earnings per share will decrease, and the number of shares outstanding will stay constant.

Answer(s): C

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QUESTION: 32

Optimal dividend policy is one that does all of the following EXCEPT:

maintain adequate retained earnings for future growth.
maximize shareholder value.
distribute corporate income to investors.
balance tax shield benefits against agency costs.

Answer(s): D

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Company XYZ has determined that its weighted average cost of capital is 12.5%. The capital structure of the company is made up of 75% equity and 25% debt. The before-tax cost of debt is 10%. Given a tax rate of 34%, what is XYZ's cost of common stock?