Wellington Gas has a target capital structure of 50% equity, 40% debt, and 10% preferred stock. The cost of retained earnings is 16 percent, and the cost of new equity (from selling stock)is 16.7 percent. Wellington can sell debentures at an after-tax cost of 8.3%. Its cost of preferred stock is 11.9%. What is Wellington's cost of capital before and after the break point in the MCC?

Question

Quizplus · Accepted Answer

Wellington's cost of capital before the break point in the MCC is 12.51%, and its cost of capital after the break point in the MCC is 12.86%.

Wellington Gas Has a Target Capital Structure of 50% Equity