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Your firm has $100,000 available in Retrained Earnings at a cost of 12%. Additional common stock can be issued at a cost of 14%. If your company needs to raise $200,000 in equity, what rate should you assume for its cost?

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Solution Summary

This solution calculates the rate that one would assume for the cost of $200000 in equity given stock rates.

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The cost will be weighted average of both the sources of capital:

Thus it ...

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