Question

Roberson Fashion’s capital structure consists of 30 percent debt and 70 percent common equity. Roberson is considering raising new capital to finance its expansion plans. The company’s investment banker has compiled the following information about the cost of debt if the firm issues debt:
Amount of Debt After-Tax Cost of Debt
$ 1 – $150,000 ........ 6.5%
150,001 – 450,000 ........ 7.8
450,001 – 840,000 ........ 9.0
Above– 840,000 ........ 11.0
Roberson expects to generate $350,000 in retained earnings next year. For any new equity that is issued, Roberson will incur flotation costs of 6 percent. What are the break points that Roberson faces when computing its marginal cost of capital?



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  • CreatedNovember 24, 2014
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