A firm pays its bondholders a 12% return. Its cost of retained earnings may be estimated by:

	a.	adding one to three percentage points to the 12% pretax cost of debt.
	b.	adding three to five percentage points to the 12% pretax cost of debt.
	c.	multiplying the firm's beta by three to five percentage points and adding it to the 12% pretax cost of debt.
	d.	None of the above

1. Your company is expected to earn $4.0 million in net income next year of which it will pay out 40% in dividends. If equity represents 50% of your capital, what is the breakpoint on the MCC where new stock will have to be issued?

   	a.	$2.4 million
   	b.	$4.8 million
   	c.	$4.0 million
   	d.	$3.2 million
   	e.	$8.0 million