Create a chart of trm marginal wacc curve

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Reference no: EM132712215

Problem - Suppose that TRM Consulting Services has discussed its need for capital with its investment bankers. The bankers have estimated that TRM can raise new funds in the capital markets under the following conditions:

Source

Range

After-Tax Cost

Retained Earnings

Up to 150,000

10.50%

Common Equity

Up to 1,000,000

11.12%

 

1,000,001 to 3,000,000

11.36%

 

More than 3,000,000

11.85%

Preferred Equity

Up to 200,000

8.33%

 

More than 200,000

9.00%

Debt

Up to 1,000,000

5.37%

 

1,000,001 to 2,000,000

5.90%

 

More than 2,000,000

6.25%

Required -

a. Using the information from the previous problem, calculate each of the break-points, including the break-point due to retained earnings.

b. Create a chart of TRM's marginal WACC curve using the market-value weights. Make sure that it is a perfect step function.

Reference no: EM132712215

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