Question
1. Marginal Incorporated (MI) has determined that its after-tax cost of debt is 7.0%. Its cost of preferred stock is 11.0%. Its cost of internal
1. Marginal Incorporated (MI) has determined that its after-tax cost of debt is 7.0%. Its cost of preferred stock is 11.0%. Its cost of internal equity is 16.0%, and its cost of external equity is 19.0%. Currently, the firm's capital structure has $250 million of debt, $55 million of preferred stock, and $195 million of common equity. The firm's marginal tax rate is 25%. The firm is currently making projections for the next period. Its managers have determined that the firm should have $64 million available from retained earnings for investment purposes next period. What is the firm's marginal cost of capital at a total investment level of $130 million?
|
11.54%
|
|
12.12%
|
|
10.95%
|
|
11.25%
|
|
10.08%
|
2. Marginal Incorporated (MI) has determined that its before-tax cost of debt is 9.0%. Its cost of preferred stock is 13.0%. Its cost of internal equity is 18.0%, and its cost of external equity is 20.0%. Currently, the firm's capital structure has $324 million of debt, $60 million of preferred stock, and $216 million of common equity. The firm's marginal tax rate is 35%. The firm is currently making projections for the next period. Its managers have determined that the firm should have $82 million available from retained earnings for investment purposes next period. What is the firm's marginal cost of capital at a total investment level of $305 million?
|
11.30%
|
|
10.94%
|
|
11.66%
|
|
13.36%
|
|
12.64%
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started