Newbury Inc.has retained $2 million in earnings this year.It can borrow up to $1.5 million at a rate of 8% and sell the same amount of new shares at a cost of 17%.Newbury's cost of ordinary equity without selling any new shares is 16%.If Newbury's capital budget is $2.5 million,the hierarchical funding model says management will use

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The hierarchical funding model prioritizes using retained earnings first, then debt, and finally new equity. Newbury will use $2 million in retained earnings and the remaining $0.5 million from debt.