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?
WACC using New stock (before-tax debt)
L. Corp. has determined that its before-tax cost of debt is 9.0%. Its cost of
The Weighted Average Cost of Capital (WACC) of a company is the total cost of capital, including ordinary stock, preferred stock, and debt. Each form of capital's cost is weighted by its proportion of total capital and then put together.
Step by step
Solved in 2 steps with 2 images
