Cost of domestic equity Cost of domestic debt

First $40 million new capital 12% 8%

Subsequent new capital from $41 million 18% 12%

onwards

Both debt and equity would have to be sold in multiples of $20 million, and these cost figures show the component costs, each, of debt and equity if raised half by equity and half by debt.

i) Calculate the average cost of capital for Alliance Pipeline if the company is considering raising $40 million domestically to finance the pipeline expansion project. (4 marks)