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Unformatted text preview: b. 5.6% 8) a. 6% b. 12% c. 12% 13) a. 13.55% b. 12.99% c. Using historical weights, the firm has a higher cost of capital due to the weighting of the more expensive common stock component, 65%, versus the target weight of 55%. 16) a. Cost of retained earnings = 7/90 + .06= 13.8% Cost of New common stock= 7/78 + .06= 14.97% or 15% Cost of preferred stock = 7.6/90= 8.4% The after-tax cost of debt = 4.6% Break point= $100,000/.5= $200,000 b. Based on the firms capital structure and the capital costs calculated earlier Ka= (.3x.046) + (.2x.084) + (.5x.138)= 9.96% or 10% Based on new common stock Ka= (.3x.046) + (.2x.084) + (.5x.15)= 10.6% GRADE 14/14...
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This note was uploaded on 02/02/2009 for the course BUSG 1303 taught by Professor Schwartz during the Fall '08 term at University of Cincinnati.
- Fall '08