The cost of debt for firm XYZ is 6%.It's tax rate is 40%. The cost of retained earnings is 12% and the cost of external common equity is 14%. Retained earnings is $5000. The target capital structure calls for 45% debt and 55% equity. Compute the following:

a. Retained earnings break point

b. WACC below the RE break point

c. WACC above the RE break point

Answer rating: 100% (QA)

Capital Structure and Weighted Average Cost of Capital WACC Retained Earnings Breakpoint RE Breakpoi... View the full answer