New stock (before-tax debt) L. Corp. has determined that its before-tax cost of debt is 9.0%. Its cost of preferred stock is 10.0%. Its cost of internal equity is 15.0%, and its cost of external equity is 20.0%. Currently, the firm's capital structure has $300 million of debt, $100 million of preferred stock, and $600 million of common equity. The firm's marginal tax rate is 40%. The firm is currently making projections for next period. Its managers have determined that the firm should have $100 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 $200 million?
New stock (before-tax debt) L. Corp. has determined that its before-tax cost of debt is 9.0%. Its cost of preferred stock is 10.0%. Its cost of internal equity is 15.0%, and its cost of external equity is 20.0%. Currently, the firm's capital structure has $300 million of debt, $100 million of preferred stock, and $600 million of common equity. The firm's marginal tax rate is 40%. The firm is currently making projections for next period. Its managers have determined that the firm should have $100 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 $200 million?
Chapter13: Capital Structure Concepts
Section: Chapter Questions
Problem 8P
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WACC using New stock (before-tax debt)
L. Corp. has determined that its before-tax cost of debt is 9.0%. Its cost of
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