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?
Chapter9: The Cost Of Capital
Section: Chapter Questions
Problem 7P
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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%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7e012e9c-7238-439f-94db-f8193fae6b22%2F28a1c362-6828-46cc-b497-361127178485%2F0qwrkrw_processed.png&w=3840&q=75)
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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