9. Owens Enterprises is in the process of determining its capital budget

for the next fiscal year. The firm's current capital structure, which it

considers to be optimal, is contained in the following balance sheet:

balance Sheet

Current assets

40000000

Account payable

20000000

Fixed assets

400000000

Othercurrent liabilities

10000000

Total ASSETS

440000000

Long termdebt

123000000

Common stock at

15500000

Paid in capital in excess of

51000000

Retained earnings

220500000

Total liabilities and stockholders' equity

440000000

Through discussions with the firm's investment bankers, lead bank, and

financial officers, the following information has been obtained:

a. The firm expects net income from this year to total $80 million. . The firm intends to maintain its dividend policy of paying 42.25 percent of earnings to stockholders. . The firm can borrow $18 million from its bank at a 11 percent

annual rate. Any additional debt can be obtained through the issuance of

debentures (at par) that carry a 14 percent coupon rate. The firm currently pays $4.25 per share in dividends (D0). Dividends have grown at a 5 percent rate in the past. This growth

is expected to continue. The firm's common stock currently trades at $44 per share. If the

firm were to raise any external equity, the newly issued shares

would net the company $40 per share. The firm is in the 35 percent marginal tax bracket.

Compute Owens' marginal cost of capital schedule to fund capital

projects totaling:

i. - What is the margin cost of capital for this

level of $60 million ?

ii. What is the margin cost of capital for this level $66 million (i.e., $6 million more) ?

iii. What is the margin cost of capital for Above $66 million this level