Alba Corporation is considering an expansion of their manufacturing facility. They need to raise $1,000,000.00 for the expansion. You need to determine the cost of capital for the million dollars. They can borrow 35% from a bank at an APR of 7.3%. They can also issue treasury stock at an estimated rate of 9.5%, this will account for 35% of funds that need to be expected rate of 10.5%. Alba Corporation’s tax rate is 35%.
Please calculate the cost of capital for the Alba Corporation.
If the Alba Corporation can only borrow 25% from a bank, and they must split the rest between the two other sources, please calculate the new cost of capital.