Tiger Inc. needs to raise $85,000 to purchase a new machine

QUESTION

Tiger Inc. needs to raise $85,000 to purchase a new machine. Tiger knows its component costs of capital are Debt 5%, Preferred Stock 7%, New Equity13%, and Retained Earnings 11% . Tiger maintains a capital structure that consists of 60 percent debt, 10 percent preferred stock, and 30 percent common equity. The firms marginal tax rate is 30 percent. If Tiger expects to generate $26,000 in retained earnings this year, what marginal cost of capital will it incur to raise the needed funds if needed? (HINT)

ANSWER

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