Question: Abacus and Barnacle are identical in all respects except for capital structure. Abacus has an all equity capital structure, while Barnacle has a mixed

Abacus and Barnacle are identical in all respects except for capital structure.

Abacus and Barnacle are identical in all respects except for capital structure. Abacus has an all equity capital structure, while Barnacle has a mixed capital structure of debt and equity. Barnacle's cost of debt is 10%. Abacus pays a dividend of 120,000 to its shareholders each year and this is expected to continue for the foreseeable future. Abacus has a total value of 640,000. Assuming capital markets are perfect in all respects, what is the overall cost of capital of Barnacle?

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