Question: Use the information below to answer the question Capital Structure: Debt = 60%, Equity = 40% After tax cost of existing (old) debt = 7%,

Use the information below to answer the question

Capital Structure: Debt = 60%, Equity = 40% After tax cost of existing (old) debt = 7%, New Debt= 8% Expected Net Income = $1 million Payout Ratio= 50% Funds from operations other than income = $200,000 Expected dividend = $2/shr Growth Rate= 5% Flotation Cost=15% Tax rate = 35% 1. a. What is the breakpoint of retained earnings? b. Prepare a Marginal Cost of Capital Schedule.

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