Breaks in Specific Cost of Capital: The specific costs of capital may also be affected by the amount of finance the firm wants to raise. As the amount of financing increases, the costs of various sources may also increase. These increasing costs are attributable to the fact that the investors would require greater returns to be compensated for the increased risk resulting from the larger volumes of new financing. Consequently, the WMCC tends to rise as the firm seeks more and more funds. Breaks in specific cost of capital occur as a function of the amount of funds being raised. The levels at which the specific cost of capital of a particular source increases are called the breaking points. The firm must find out at what levels of total new financing, the breaks in 'specific cost of capital and consequently breaks in WMCC occur and should also measure the WMCC at each of such breaks.
The following procedure can be used to measure the WMCC when the specific cost of capital depends on the amount raised:
a) Establish the percentage composition of new financing.
b) Prepare a list for each such source of financing giving the amount of funds that can be obtained and the specific cost of capital associated with each amount to be raised. The spe-cific cost of capital can be determined through an analysis of the current market conditions.
c) On the basis of the percentage composition of the total new financing (step1), estimates the breaking points in the WMCC. The break points identify the levels of the total new financing at which the WMCC increases.