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Marginal Incorporated (MI) has determined that its before-tax cost of debt is 10.0%. Its cost of preferred stock is 14.0%. Its cost of internal equity is 16.0%, and its cost of external equity is 21.0%. Currently, the firm's capital structure has $372 million of debt, $30 million of preferred stock, and $198 million of common equity. The firm's marginal tax rate is 25%. The firm is currently making projections for the next period. Its managers have determined that the firm should have $70 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 $293 million?

Marginal Incorporated (MI) has determined that its before-tax cost of debt is 10.0%. Its cost of preferred stock is 14.0%. Its cost of internal equity is 16.0%, and its cost of external equity is 21.0%. Currently, the firm's capital structure has $372 million of debt, $30 million of preferred stock, and $198 million of common equity. The firm's marginal tax rate is 25%. The firm is currently making projections for the next period. Its managers have determined that the firm should have $70 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 $293 million?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Marginal Incorporated (MI) has determined that its before-tax cost of debt is 10.0%. Its cost of preferred stock is 14.0%. Its cost of internal equity is 16.0%, and its cost of external equity is 21.0%. Currently, the firm's capital structure has $372 million of debt, $30 million of preferred stock, and $198 million of common equity. The firm's marginal tax rate is 25%. The firm is currently making projections for the next period. Its managers have determined that the firm should have $70 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 $293 million? 12.28% 10.63% 11.46% 13.83% 12.18%
Transcribed Image Text:Marginal Incorporated (MI) has determined that its before-tax cost of debt is 10.0%. Its cost of preferred stock is 14.0%. Its cost of internal equity is 16.0%, and its cost of external equity is 21.0%. Currently, the firm's capital structure has $372 million of debt, $30 million of preferred stock, and $198 million of common equity. The firm's marginal tax rate is 25%. The firm is currently making projections for the next period. Its managers have determined that the firm should have $70 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 $293 million? 12.28% 10.63% 11.46% 13.83% 12.18%
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