Nar Co. has $85 million in retained earnings. Its common stock is selling for $45, and the current debt to assets ratio is 45%.
The company can raise up to $90.0 million in debt at 8%. A 10% interest will apply if the amount exceeds $90.0 million.
New common stock (net of floatation costs) yields the firm $41.
The required rate of return on retained earnings (Rs) is 11%.
The last dividend paid was $2.16.
The tax rate is 34%.
How many break points are thre in the marginal cost of capital schedule? And what are WACCs above and below each break point?