Dallas Company has the following target capital structure:

Debt..................................... ..65%

Preferred Stock................... 10%

Common Equity...................... 25%

The following costs were calculated:

After tax cost of debt...... .8%

Cost of preferred stock......... 12%

Cost of retained earnings..... 15%

Cost of new common stock.. .16%

What is the initial weighted average cost of capital, assuming all required funding is raised without issuing common stock?

Question 31 options:

	35.00%
	14.15%
	11.67%
	10.15%

Question 32 (2 points)

Use the same information to continue answering questions 31 33.

Dallas Company has the following target capital structure:

Debt..................................... ..65%

Preferred Stock................... 10%

Common Equity...................... 25%

The following costs were calculated:

After tax cost of debt...... .8%

Cost of preferred stock......... 12%

Cost of retained earnings..... 15%

Cost of new common stock.. .16%

Assuming no beginning balance in retained earnings, and net income of $3,000,000, what is the maximum amount of financing the company could raise before they run out of retained earnings?

Question 32 options:

	$12,000,000
	$3,000 000
	$750,000
	$450,000

Question 33 (2 points)

Use the same information to continue answering questions 31 33.

Dallas Company has the following target capital structure:

Debt..................................... ..65%

Preferred Stock................... 10%

Common Equity...................... 25%

The following costs were calculated:

After tax cost of debt...... .8%

Cost of preferred stock......... 12%

Cost of retained earnings..... 15%

Cost of new common stock.. .16%

What is the weighted average cost of capital if the company needs to raise more than the amount calculated in question 32 above, and therefore, equity financing cannot be obtained through the use of retained earnings?

Question 33 options:

	10.4%
	12.0%
	12.75%
	14.15%

The general rule for using the weighted average cost of capital (WACC) when considering investment opportunities is to accept all projects or investment opportunities with:

	rates of return greater than or equal to the WACC.
	rates of return less than the WACC.
	positive rates of return.