Find weighted average cost of capital

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1.Assume that a company added $30,000 to its retained earnings last year. It is financing 75% of its assets with debt, and the rest with common equity. How large does the capital budget has to be before the firm runs out of retained earnings? Show your calculations.

2. Find weighted average cost of capital if cost of internal equity is 10% and before-tax cost of debt is 7%. Corporate tax rate is 38%. Use the same proportions of debt and equity as in part 1: the company is financing 75% of its assets with debt, and the rest with internal common equity.

Show your calculations.

Reference no: EM132412320

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