Marginal Incorporated (MI) has determined that its before-tax cost of debt is 4.0% for the first...
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Marginal Incorporated (MI) has determined that its before-tax cost of debt is 4.0% for the first $285 million in bonds it issues, and 8.0% for any bonds issued above $285 million. Its cost of preferred stock is 13.0%. Its cost of internal equity is 16.0%, and its cost of external equity is 20.0%. Currently, the firm's capital structure has $540 million of debt, $90 million of preferred stock, and $270 million of common equity. The firm's marginal tax rate is 25%. The firm's managers have determined that the firm should have $89 million available from retained earnings for investment purposes next period. What is the firm's marginal cost of capital at a total investment level of $386 million? Marginal Incorporated (MI) has determined that its before-tax cost of debt is 4.0% for the first $285 million in bonds it issues, and 8.0% for any bonds issued above $285 million. Its cost of preferred stock is 13.0%. Its cost of internal equity is 16.0%, and its cost of external equity is 20.0%. Currently, the firm's capital structure has $540 million of debt, $90 million of preferred stock, and $270 million of common equity. The firm's marginal tax rate is 25%. The firm's managers have determined that the firm should have $89 million available from retained earnings for investment purposes next period. What is the firm's marginal cost of capital at a total investment level of $386 million?
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To calculate the firms marginal cost of capital MCC at a total investment level of 386 million we need to first determine the weights of each componen... View the full answer
Related Book For
Principles of Accounting
ISBN: 978-1133626985
12th edition
Authors: Belverd E. Needles, Marian Powers and Susan V. Crosson
Posted Date:
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