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NY Key Weighted Marginal Cost

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New York Key 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 13.75%. If the company is in the 40% tax bracket, what is New York Key's weighted marginal cost of capital?

a) 7.5%
b) 9.2%
c) 10.4%
d) 13.8%.

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Solution Summary

This solution shows step-by-step calculations to determine New York's weighted marginal cost of capital using the rate of return on debt, required rate of return on equity as well as the tax bracket.

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