Macon Corporation has a target capital structure consisting of 40% Debt and 60% Common Equity. Macon can borrow up to $650,000 from it's banker at an after-tax rate of 6.75%. Additional debt can be raised by issuing 10-year semi-annual bonds that will carry an after-tax cost of 8.00%. The firm has $400,000 available in retained earnings. The cost of retained earnings is 14.00 %. If new common shares are issued, the cost will be 16.2%. Calculate the first break point in the Macon Corporation capital funding.
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 21 images
