If you were the financial manager for this company, which calculation of the cost of capital would you choose? A or B? and Why? (calculations below)

A - Cost of retained earning = 2.5 (1+0.06)/25 + 0.06 = 13.57%

Weight of debt 50/70 = .7142

Weight of equity = 20/70 = .2857

Cost of new debt = 5.25%

Cost of retained earnings = 13.57%

WACC = (.7143*5.24%) + (0.2857*13.57%) = 7.62%

B -

Weight of debt= 0.40

Weight of retained earnings= 0.2857

Weight of new equity= (70-28-20) / 70 = 0.3142

	Weight	Cost	Weighted cost
Debt	.40	5.24%	2.10%
Retained Earnings	.2857	13.57%	3.88%
New Equity	.3143	14.03%	4.41%
			SUM = WACC = 10.50%