A Using the information from the previous problem, calculate each ofthe break-points, including the break-point due to retained earnings.

B.Create a chart of TRMs marginal WACC curve using the market-value weights. Make sure that it is a perfect step function.

PLEASE EXPLAIN HOW YOU GOT THE BREAK POINT.

% of Total Break-points Source Retained Earnings Common Equity 64.77% Max Level Up to 150,000 Up to 1,000,000 1,000,001 to 3,000,000 More than 3,000,000 Up to 200,000 More than 200,000 Up to 1,000,000 1,000,001 to 2,000,000 More than 2,000,000 After-tax Cost 10.50% 10.93% 11.26% 11.85% 4.86% 6.25% 4.33% 4.86% 5.12% Preferred Equity 12.95% Debt 22.28% Total Capital Cost of Preferred Cost of Debt WACC Cost of Equity 0 After-Tax Cost 10.50% 10.93% 11.26% 11.85% Source Range Retained Earnings Up to 150,000 Common Equity Up to 1,000,000 1,000,001 to 3,000,000 More than 3,000,000 Preferred Equity Up to 200,000 More than 200,000 Debt Up to 1,000,000 1,000,001 to 2,000,000 More than 2,000,000 4.86% 6.25% 4.33% 4.86% 5.12% % of Total Break-points Source Retained Earnings Common Equity 64.77% Max Level Up to 150,000 Up to 1,000,000 1,000,001 to 3,000,000 More than 3,000,000 Up to 200,000 More than 200,000 Up to 1,000,000 1,000,001 to 2,000,000 More than 2,000,000 After-tax Cost 10.50% 10.93% 11.26% 11.85% 4.86% 6.25% 4.33% 4.86% 5.12% Preferred Equity 12.95% Debt 22.28% Total Capital Cost of Preferred Cost of Debt WACC Cost of Equity 0 After-Tax Cost 10.50% 10.93% 11.26% 11.85% Source Range Retained Earnings Up to 150,000 Common Equity Up to 1,000,000 1,000,001 to 3,000,000 More than 3,000,000 Preferred Equity Up to 200,000 More than 200,000 Debt Up to 1,000,000 1,000,001 to 2,000,000 More than 2,000,000 4.86% 6.25% 4.33% 4.86% 5.12%