Rolodex Inc. is in the process of determining its capital budget for the next fiscal year. The firm$$s current capital structure, which it considers to be optimal, is contained in the following balance sheet:

Note: For this problem, use the book value of the items to get the capital structure. However, you normally want to use the market values. Long$-$term debt is the only debt capital structure account. Add common stock, capital in excess of par, and RE to get common equity.

Rolodex Inc. Balance Sheet $($in Millions of Dollars$)$

Current assets $ $105$ Accounts payable $ $35$

Fixed assets $255$ Other current liabilities $25$

Total assets $ $360$ Long$-$term debt $90$

Preferred stock $60$

Common stock $(15$ million shares at par$)15$

Contributed capital in excess of par $30$

Retained earnings $105$

Total liabilities and equity $ $360$

Discussions between the firm$$s financial officers and the firm$$s investment and commercial bankers have yielded the following information:

Rolodex can borrow $$30$ million from its bank at a pretax cost of $11$ percent.

Rolodex can borrow $$25$ million by issuing bonds at a net price of $$875$ per bond. The bonds would carry a $13$ percent coupon rate and mature in $15$ years.

Additional debt can be issued at a $17$ percent pretax cost

Preferred stock can be issued at a pretax cost of $18$ percent.

Rolodex expects to generate $$120$ million in net income and pay $$2\mathrm{.}15$ per share in dividends.

Hint: RE $=$ Net income $-$ total common dividends.There are $15$m shares shown as outstanding in the balance sheet.

The $$2\mathrm{.}15$ per share dividend $($D$1)$ represents a growth of $5\mathrm{.}5$ percent over the previous year$$s dividend. This growth rate is expected to continue for the foreseeable future. The firm$$s stock currently is trading at $$16\mathrm{.}5$ per share.

Rolodex can raise external equity by selling common stock at a net price of $$14\mathrm{.}5$ per share.

Rolodex$$s marginal tax rate is $40$ percent.

Round your answers to two decimal places. $10\mathrm{.}12\%$ would be entered as $10\mathrm{.}12$

What is the weight on debt?

$\%$

What is the after$-$tax cost of debt for the second class of debt?

$\%$

What is the internal cost of equity?

$\%$

What is the external cost of equity?

$\%$

Does debt or equity have the lowest breakpoint? Enter debt or equity.

Compute Rolodex$$s marginal cost of capital schedule.

Weighted marginal cost of capital

First increment:

$\%$

Second increment:

$\%$

Third increment:

$\%$

Additional funds:

$\%$