Marginal Incorporated (MI) has determined that its before-tax cost of debt is 7.0%. Its cost of preferred stock is 15.0%. Its cost of internal equity is 19.0%, and its cost of external equity is 24.0%. Currently, the firm's capital structure has $470 million of debt, $90 million of preferred stock, and $440 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 $58 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 $181 million? 12.18% 14.38% 13.28% 15.20% 13.00%
Marginal Incorporated (MI) has determined that its before-tax cost of debt is 7.0%. Its cost of preferred stock is 15.0%. Its cost of internal equity is 19.0%, and its cost of external equity is 24.0%. Currently, the firm's capital structure has $470 million of debt, $90 million of preferred stock, and $440 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 $58 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 $181 million? 12.18% 14.38% 13.28% 15.20% 13.00%
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Raghubhai
Transcribed Image Text:Marginal Incorporated (MI) has determined that its before-tax cost of debt is 7.0%.
Its cost of preferred stock is 15.0%. Its cost of internal equity is 19.0%, and its cost
of external equity is 24.0%. Currently, the firm's capital structure has $470 million of
debt, $90 million of preferred stock, and $440 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 $58 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 $181 million?
12.18%
14.38%
13.28%
15.20%
13.00%
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