A): Tata Industries currently has assets on its balance sheet of $200 million financed with 70% equity and 30% debt. The executive management team at Tata is considering a major expansion that would require raising additional capital. Sarah Daw, the CFO of Tata, has put together the following schedule for the costs of debt and equity:

Amount of new debt (in millions)	After-tax cost of debt	Amount of new equity (in millions)	Cost of equity
$0 to $49	4%	$0 to $99	7%
$50 to $99	4.2%	$100 to $199	8%
$100 to $149	4.5%	$200 to $299	9%

In a presentation to Tatas board of Directors, Sarah makes the following statements: Statement 1: if we maintain our target capital structure of 70% equity and 30% debt, the breakpoint at which our cost of equity will increase to 8% is $185 million in new capital. Statement 2: If we want to finance total assets of $450 million, our marginal cost of capital will increase to 7.56%. Are Sarahs statements 1 and 2 most likely correct or incorrect?

	Statement 1	Statement 2
A.	Correct	Incorrect
B.	Correct	Correct
C.	Incorrect	Correct
D.	Incorrect	Incorrect

B ) :. Given the following information on a companys capital structure, what is the companys weighted average cost of capital? The marginal tax rate is 40%.

Type of Capital	Percentage of capital structure	Before-tax component cost
Bonds	30%	7.5%
Preferred stock	15%	11%
Common stock	55%	15%

A. 9.61%. B. 11.25%. C. 12.18%. D. 12.26%. E. 13.18%.