Matsumoto Limited (ML), a large conglomerate firm, has a capital structure that currently consists of 20 percent long-term debt, 10 percent preferred stock, and 70 percent common equity. ML has determined that it will raise funds in the future using 40 percent long-term debt, 10 percent preferred stock, and 50 percent common equity.

ML can raise up to $50 million in the long-term debt market at a pretax cost of 18 percent. Beyond $50 million, the pretax cost of long-term debt is expected to increase to 20 percent. Preferred stock can be raised at a cost of 19 percent. The limited demand for this security permits ML to sell only $20 million of preferred stock. ML’s marginal tax rate is 40 percent.

ML’s stock currently sells for $40 per share and has a beta of 1.5. ML pays no dividends and is not expected to pay any dividends for the foreseeable future. Investment advisory services expect the stock price to increase from its current level of $40 per share to a level of $99.50 per share at the end of five years. New shares can be sold to net the Company $38.35. ML expects earnings after taxes and available for common stockholders to be $60 million.

Compute the marginal cost of capital schedule for ML, and determine the break points in the schedule.