The new common stock cost is 16.3%. The price of a stock is determined as the present value of its anticipated future dividends discounted at the cost of equity. The cost of equity can be established through the capital asset pricing model (CAPM). According to CAPM, the cost of equity is defined as Ke = Rf + β(Rm-Rf), where Rf is 6%, Rm-Rf equals 5%, and β equals 2.00. This leads us to: E(r) = 6% + 2.00 × (5%) = 16%. The current market price is calculated as: Market price = 3.00 × (1.1)/(0.16-0.1) = $55. By factoring in the flotation costs while applying the dividend valuation model, the cost of the new common stock is given by: Cost of new common stock = D0 × (1 + g)/Po × (1-F) + g, where Po is 55, g is 10%, F is 5%, and D0 is 3. The calculation yields: 3 × (1.1)/55 × (1-0.05) + 0.1 = 16.3%.
Answer:
c. believes that the incremental benefit derived from an additional hour of studying surpasses the marginal expense of neglecting basketball.
Explanation:
Russel opted to devote an hour to studying rather than engaging in basketball. In decision-making, individuals assess the advantages of an action against its associated opportunity cost.
Opportunity cost refers to the value of the alternative not chosen when a decision is made.
In this scenario, Russell decided on studying, and the opportunity cost was foregoing the enjoyment of playing basketball.
His choice to study signifies that he perceived the value of learning to outweigh the cost associated with not participating in basketball, thus selecting the most advantageous option for himself.
