Babes Dog Obedience School, Inc., wants to maintain its current capital structure of 50 percent common equity, 10 percent preferred stock, and 40 percent debt. Its cost of common equity is 13 percent, and the cost of preferred stock is 12 percent. The banks effective annual interest rate is 11 percent for amounts borrowed that are less than or equal to $1 million and 13 percent for amounts between $1 million and $2 million. If more than $2 million is borrowed, the effective annual interest rate charged is 15 percent. Babes tax rate is 40 percent. The firm expects to realize $2,750,000 in net income this year after preferred dividends have been paid.

a. Calculate the MCC if $900,000 is needed for an upcoming project.

b. Calculate the MCC if $3,000,000 is needed for the project instead.

c. If a different project is adopted and $5,005,000 is needed for it, what is the MCC?

9-25. Babe's Dog Obedience School, Inc., wants to maintain its current capital structure of 50 percent common equity, 10 percent preferred stock, and 40 percent debt. Its cost of common equity is 13 percent, and the cost of preferred stock is 12 percent. The bank's effective annual interest rate is 11 percent for amounts borrowed that are less than or equal to $1 million and 13 percent for amounts between $1 million and $2 million. If more than S2 million is borrowed, the effective annual interest rate charged is 15 percent. Babe's tax rate is 40 percent. The firm expects to realize $2,750,000 in net income this year after preferred dividends have been paid. a. Calculate the MCC if S900,000 is needed for an upcoming project. b. Calculate the MCC if $3,000,000 is needed for the project instead. c. If a different project is adopted and $5,005,000 is needed for it, what is the MCC