Question $3$

ABC company has a target capital structure of $40\%$ debt and $60\%$ equity. ABC's pretax cost of debt

will remain at $9\%$ until the firm raises more than $$200,000$ in new debt capital, at which point the

pretax cost of debt will increase to $9\mathrm{.}5\%.$ ABC's cost of equity will increase when more than $$400,000$

in equity capital is raised. What is ABC $\text{'}$s break point for debt capital?

$($Total: $20$ marks$)$