Solve: Marginal Cost of Capital
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Question: The weighted average cost of capital for firm X is currently 10%. Firm X is considering a new project, but must raise new debt to finance the project. Debt represents 25% of the capital structure. If the after tax cost of debt will rise form 7% to 8%, what is the marginal cost of capital?
A)10.25%,
B)10.75%
C)12.00%,
D)Not enough information
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Solution Summary
This solution explains how to calculate the marginal cost of capital when given an increase in the cost of debt. This solution illustrates the simple calculation which is required for this response, along with an explanation as to why that particular calculation was conducted.
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