Homework Answers
After tax cost of debt=10.80%*(1-30%)=7.5600%
Cost of preferred stock=6/(70*(1-4%))=8.9286%
Cost of retained earnings=1.40/35+6%=10.0000%
Weighted average cost of capital=45%*(10.80%*(1-30%))+15%*(6/(70*(1-4%)))+40%*(1.40/35+6%)=8.7413%
Marginal average cost of capital=45%*(10.80%*(1-30%))+15%*(6/(70*(1-4%)))+40%*(1.40/(35-4)+6%)=8.9477%
Projects 2,3 and 4 should be accepted
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investor'scompany vendor'sItem 1 required return on the applicable
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