Cheapest combination of funds exhausted

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Norwalk, Inc. can obtain funds for future investments through retained earnings, new issues of common stock, issuance of debt, and issuance of preferred stock. The Board of Directors believe an appropriate capital structure is one where funds are acquired in the following mix: 45% debt, 15% preferred stock, and 40% common stock. New issuance or flotation costs for the issuance of new securities amount to 3% for debt, 5% for preferred stock, and 10% for common stock. Norwalk has $82 million available in retained earnings and has a marginal tax rate of 25%.

Norwalk's before-tax cost of debt is 8%. Their cost of preferred stock is 11%. Their cost of retained earnings is 13%. And Norwalk's cost of a new issue of common stock is 15%.

What is Norwalk's breakpoint, where the cheapest combination of funds is exhausted?

Reference no: EM132515939

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