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Rozell Mfg. Co. has a target capital structure of 50% debt 50% equity. They are planning to invest in a project that will necessitate raising
Rozell Mfg. Co. has a target capital structure of 50% debt 50% equity. They are planning to invest in a project that will necessitate raising new capital. New debt will be issued at a before-tax yield of 10%, with a coupon rate of 8%. The equity will be provided by internally generated funds so no new outside equity will be issued. If the required rate of return on the firm's stock is 16% and its marginal tax rate is 35%, compute the firm's cost of capital.
a. 10.60% b. 11.25% c. 13.00% d. 12.00%
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