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Cost of external common equity

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Reference no: EM131050237

The cost of debt for firm XYZ is 6%. It's tax rate is 40%. The cost of retained earnings is 12% and the cost of external common equity is 14%. Retained earnings is $5000. The target capital structure calls for 45% debt and 55% equity. Compute the following:

A. Retained earnings break point

B. WACC below the RE break point

C. WACC above the RE break point

Reference no: EM131050237

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