Determine the Marginal Cost of Capital Program (MCC Program)

The current, and optimal, Capital Structure of Tapley Inc. is 40% Debt and 60% Common Equity. The firm can obtain up to $ 5 million in new Debt at a pre-tax cost of 8%. If more Debt is required, the initial cost will be 8.5%, and if it will be more than $ 10 million in Debt, the cost will be 9%. Net Income for the previous year was $ 10 million, and it is expected to increase 10% this year. The firm expects to maintain its Dividend Payment Ratio (DPR) at 40% (D0 = $ 4.00). If new Common Capital is to be issued, it will have to absorb 10% of the Floating Cost in the first $ 2 million, 15%, over an additional $ 2 million, and 20% if more than $ 4 million of new external Common Capital is required. Tapley has a 30% Tax Rate, and the actual Share Price is $ 88.