Reference no: EM132028532

The mcgee corporation finds it necessary to determine its marginal cost of capital. Mcgee's current capital structure set calls for 50% debt, 20% preferred stock, and 30% common equity. Initially, common equity would be in the form of retained earnings(Ke) and then new common stock(Kn). The cost of the various sources of financing are as follows: debt, 6.2%, preferred stock, 7.0%, retained earnings, 13%, and new common stock, 14.4%

a. what is the initial weighted average cost of capital

debt

preferred stock

common equity

weighted average cost of capital

b. if the firm has $25.5 million in retained earnings, at what size capital structure will the firm run out of retained earnings?

c. what will the marginal cost of capital be immediately after that point?(equity will remain at 30% of the capital structure, but will all be in the form of new common stock, Kn)

d. the 6.2% cost of debt referred to above applies only to the first $28 million of debt. After that, the cost of debt will be 9.2%. At what size capital structure will there be a change in the cost of debt?

e. what will the marginal cost of capital be immediately after that point? (consider the facts in both parts c and d)