Calculate the weighted cost of capital in each of intervals

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Reference no: EM132765136

Rhonda Pollak Company is considering three investments whose initial costs and internal rates of return are given below:

Project        Initial Cost ($)         Internal Rate of Return (%)
A               100,000                          19
B              125,000                           15
C                225,000                       12

The company finances all expansion with 40 percent debt and 60 percent equity capital. The after-tax cost is 8 percent for the first $100,000, after which the cost will be 10 percent. Retained earnings in the amount of $150,000 is available, and the common stockholders' required rate of return is 18 percent. If the new stock is issued, the cost will be 22 percent.

Problem a: Calculate:

1. the dollar amounts at which breaks occur,
2. calculate the weighted cost of capital in each of the intervals between the breaks.

Reference no: EM132765136

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