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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%

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