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a) The after-tax cost of debt is 4.9%, the cost of preferred stock is 7%, and the cost of common equity (in the form of
a) The after-tax cost of debt is 4.9%, the cost of preferred stock is 7%, and the cost of common equity (in the form of retained earnings) is 15%. The cost of new common for the firm is 16.4%. Assuming the firm's common equity consists of retained earnings, find the weighted average cost of capita. (4 points) b) Find the marginal cost of capital after the firm has run out of retained earnings and issued new common. ( 2 points)
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