The XYZ Company is planning a $50 million expansion.

The XYZ Company is planning a $50 million expansion. The expansion is to be financed by selling $20 million in new debt and $30 million in new common stock. The before-tax required rate of return on debt is 9%, and the required rate of return on equity is 14%. If the company is in the 40% tax bracket, what is the marginal cost of capital?
A.

14.0%
B.

9.0%
C.

10.6%
D.

11.5%

 

Solution