1.Marginal Cost of Capital Paul Newman Dressing Corporation (PM) finds it is necessary to determine the firm's Marginal Cost of capital. PM's current capital structure calls for 45% debt, 15% preferred stock, and 40% common equity. Then costs of the various financing are as follows: ATR_D = 5.6%, R_P = 9%, R_E = 12%. If the firm has to issue new common stock; flotation, signaling, and dilution will cost the firm an additional 1.25%.

a.What is the initial cost of capital?

b.If the firm has $12 million in retained earnings, how much capital can it raise before the marginal cost of capital rises? What will the marginal cost of capital be immediately after that point?

c.If the firm issues more than $18 million in debt, the cost will increase to 7.2%. How much capital can it raise before the marginal cost of capital rises? What will the marginal cost of capital be immediately after that point?

d.What would be the cost of capital for a new manufacturing facility that would cost the firm a total of $50 million?