Compute the weighted average cost of capital and the

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Reference no: EM13477118

Misty Ltd wishes to determine its weighted marginal cost of capital. In preparing for this task, it has compiled the following data:

Source of Capital	Target	Range of Financing			After-Tax
	Proportion	$		$	Cost
Long-Term Debt	0.4	0	to	300,000	0.065
		300,001	to	600,000	0.075
		600,001	and above		0.090
Preference Shares	0.1	0	to	100,000	0.095
		100,001	and above		0.100
Ordinary Shares	0.5	0	to	500,000	0.11
		500,001	to	1,000,000	0.125
		1,000,001	and above		0.14

a) Determine the breaking points and ranges of total financing associated witheach source of capital;

b) Using the data developed determine the levels of total financing at whichthe firm's weighted average cost of capital (WACC) will change;

c) Calculate the weighted average cost of capital and the weighted marginal cost (WMCC) for each range of total financing

d) Using the results along with the information on the available investmentopportunities shown below, compile the firm's investment opportunitiesschedule (IOS), plot this schedule and plot the weighted marginal cost of capital schedule

Investment Opportunities Schedule
Investment	IRR	Initial
Opportunity	IRR	Investment
A	0.14	200,000
B	0.12	300,000
C	0.11	500,000
D	0.1	300,000
E	0.09	600,000
F	0.08	100,000

e) Which, if any of the available investments would you recommend that the firm accept? Explain your answer.

Reference no: EM13477118

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