72. An analyst gathers the following information about the cost and availability of
raising various amounts of new debt and equity capital for a company:
Amount of new debt
Cost of debt
Amount of new equity
Cost of
(in millions)
(after tax)
equity
≤ €5.0
≤ €4.0
4%
13%
5%
> €4.0
> €5.0
15%
The company’s target capital structure is 60 percent equity and 40 percent debt.
If the company raises €9.5 million in new financing, the marginal cost of capital is
closest to:
A. 9.8%.
B. 10.6%.
C. 11.0%.
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