TSL, a supplier of high-end fitness equipment, has some investment opportunities. Due to capital rationing TSL can spend only up to $2,000,000 in new investment opportunities. TSL has the following information to consider. Opportunity to Invest IRR Cost Project A 16% $300,000 Project B 14% $500,000 Project C 12% $500,000 Project D 11% $600,000 Project E 15% $700,000 Project F 18% $500,000 The preferred Capital structure for TSL is: DEBT 50%, Preferred 10% and Equity 40% The Financial manager has also determined that TSL has $120,000 available in retained earnings and they can borrow $250,000 debt without incurring additional financing costs. The cost of debt, preferred shares and equity are currently 6%, 10% and 18% net to taxes respectively as applicable, The range of new financing cost beyond break points are First Break point: Debt 8% Preferred 10% (no change) and Equity 18% Second Break point: Debt 10%, Preferred 10% ( no change) and Equity 20% Required: A) Compute the Weighted Average Cost of Capital ( WACC and complete the Marginal Cost of Capital (MCC) for the Various range of financing.

TSL, a supplier of high-end fitness equipment, has some investment opportunities. Due to capital rationing TSL can spend only up to $2,000,000 in new investment opportunities. TSL has the following information to consider. Opportunity to Invest IRR Cost Project A 16% $300,000 Project B 14% $500,000 Project C 12% $500,000 Project D 11% $600,000 Project E 15% $700,000 Project F 18% $500,000 The preferred Capital structure for TSL is: DEBT 50%, Preferred 10% and Equity 40% The Financial manager has also determined that TSL has $120,000 available in retained earnings and they can borrow $250,000 debt without incurring additional financing costs. The cost of debt, preferred shares and equity are currently 6%, 10% and 18% net to taxes respectively as applicable, The range of new financing cost beyond break points are First Break point: Debt 8% Preferred 10% (no change) and Equity 18% Second Break point: Debt 10%, Preferred 10% ( no change) and Equity 20% Required: A) Compute the Weighted Average Cost of Capital ( WACC and complete the Marginal Cost of Capital (MCC) for the Various range of financing.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 8P

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