Sams Orthodontic Services (SOS) will retain for reinvestment $300,000 of the net income it expects to generate

Question:

Sam’s Orthodontic Services (SOS) will retain for reinvestment $300,000 of the net income it expects to generate next year. Recently, the CFO determined that the firm’s after-tax cost of debt, rdT, is 5 percent; its cost of internal equity (retained earnings), rs, is 10 percent; and its cost of external equity (new common stock), re, is 13 percent. Next year, SOS expects to finance investment projects so as to maintain its current capital structure, which consists of 60 percent debt. SOS has no preferred stock. What will SOS’s marginal be if its total investment needs are $700,000 for next year?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...