What is the firm marginal cost of capital

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Reference no: EM131990167

Question: Marginal Incorporated (MI) has determined that its before-tax cost of debt is 5.0% for the first $25 million in bonds it issues, and 9.0% for any bonds issued above $25 million. Its cost of preferred stock is 13.0%. Its cost of internal equity is 16.0%, and its cost of external equity is 18.0%. Currently, the firm's capital structure has $410 million of debt, $80 million of preferred stock, and $510 million of common equity. The firm's marginal tax rate is 45%. The firm's managers have determined that the firm should have $53 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 $83 million?

Reference no: EM131990167

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