Colbyco Industries has a target capital structure of $70$ percent common equity, $10$ percent debt, and $20$ percent preferred stock. The cost of retained earnings is $19$ percent, and the cost of new equity $($external$)$ is $21$ percent. Colbyco anticipates having $$21$ million of new retained earnings available over the coming year. Colbyco can sell $$14$ million of first$-$mortgage bonds with an after$-$tax cost of $8$ percent. Its investment bankers feel the company could sell $$8$ million of debentures with a $8\mathrm{.}5$ percent after$-$tax cost. Additional debt would cost $9$ percent after tax and be in the form of subordinated debentures. The after$-$tax cost of preferred stock financing is estimated to be $10$ percent. Compute the marginal cost of capital schedule for Colbyco, and determine the break points in the schedule.

Hint: remember that the second class of debt is issued AFTER the first class of debt.

Round your answers for break points to the nearest million; $$52\mathrm{.}3$m should be entered as $52.$

Round your answers for weighted marginal cost of capital to two decimal places. $10\mathrm{.}12\%$ should be entered as $10\mathrm{.}12$

Break point Weighted marginal cost of capital

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$

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$

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Additional funds

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