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Global Advertising Company the Global Advertising Company Had Net Income After Interest but After

question 93

Multiple Choice

Global Advertising Company
The Global Advertising Company had net income after interest but before taxes of $40,000 this year. The marginal tax rate is 40 percent, and the dividend payout ratio is 30 percent. The company can raise debt at a 12 percent interest rate for any amount of debt less than $8,000. If the firm raises $8,000 or more of debt, a 15 percent interest rate will apply to that new debt. The last dividend paid by Global was $0.90. Global's common stock is selling for $8.59 per share, and its expected growth rate in earnings and dividends is 5 percent. If Global issues new common stock, the flotation cost incurred will be 10 percent. Global plans to finance all capital expenditures with 30 percent debt and 70 percent equity.
-Refer to Global Advertising Company.There are two break points in Global's MCC schedule,one when retained earnings have been used up,and one when low-cost debt has been used up ($26,667) .Therefore,there are three intervals in the MCC schedule.What is the marginal cost of capital in each of these intervals?
1st interval 2nd interval 3rd interval

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