Marginal Incorporated (MI) has determined that its after-tax cost of debt is 5.0% for the first $62 million in bonds it issues, and 7.0% for any bonds issued above $62 million. Its cost of preferred stock is 12.0%. Its cost of internal equity is 15.0%, and its cost of external equity is 19.0%. Currently, the firm's capital structure has $325 million of debt, $70 million of preferred stock, and $105 million of common equity. The firm's marginal tax rate is 45%. The firm's managers have determined that the firm should have $50 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 $167 million?

Marginal Incorporated (MI) has determined that its after-tax cost of debt is 5.0% for the first $62 million in bonds it issues, and 7.0% for any bonds issued above $62 million. Its cost of preferred stock is 12.0%. Its cost of internal equity is 15.0%, and its cost of external equity is 19.0%. Currently, the firm's capital structure has $325 million of debt, $70 million of preferred stock, and $105 million of common equity. The firm's marginal tax rate is 45%. The firm's managers have determined that the firm should have $50 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 $167 million?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 8P

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