Which of the following statements is CORRECT? Assume a company's target capital structure is 50% debt and % common equity. The WACC is calculated on a before-tax basis. The WACC exceeds the cost of equity. The cost of equity is always equal to or greater than the cost of debt. The cost of reinvested earnings typically exceeds the cost of new common stock. The interest rate used to calculate the WACC is the average after-tax cost of all the company's outstanding debt as shown on its balance sheet. You have been hired as a consultant by Feludi Inc.'s CFO, who wants you to help her estimate the cost of capital. You have been provided with the following data: r_RF = 4.10%; RP_M = 5.25%; and b = 1.30. Based on the CAPM approach, what is the cost of common from reinvested earnings? 9.67% 9.97% 10.28% 10.60% 10.93% Marginal cost of capital recognizes that cost of capital does not stay constant as more funds arc raised. usually provides the same capital budgeting choices as the use of weighted average cost of capital. can be defined as the cost of capital when no retained earnings are available for expansion. none Of the above apply. Junk bonds arc high risk, high yield debt instruments. They are often used to finance leveraged buyouts and mergers, and to provide financing to companies of questionable financial strength. (A: Tree, B: False) The ABC Corporation has $300,000 of retained earnings available at a cost (k_r) of 13%. If it exhausts retained earnings, it must use new common Stock at a cost (k_n) of 14%. Additionally, the firm expects it can raise up to $400,000 of long-term debt at a cost(k_L) of 5.6%; any further use of debt will be at a cost of 8.4%. The firm can issue an unlimited number of shares of preferred stock at a cost (k_P) of 10.6%. The target capital structure is 40% L-T debt, 50% common equity, and 10% preferred Mock. ABC's breaking points for WACC calculation is: $600,000 51,000,000 $700,000 Both A & B are correct None of the Above In the non-constant growth model where the first phase of growth is 5 years followed by a second phase of constant growth P_5 = D_6/(K_e - g) P_0 = the present value of dividends from years 1 - 5 plus the present value of P_5 The company's growth rate is probably higher than Kg during the first 5 years. All of the above are correct