(Answered) Luzhny corporation has a target capital structure of 25

Management Studies

Luzhny Corporation has a target capital structure of 25% bond financing, 20% preferred stock financing, and 55% common equity financing. The cost of bonds is 7%, the cost of preferred stock is 12%, the cost of retained earnings is 15%, and the cost of a new issue of common stock is 16%. Luzhny forecasts it will retain $1,000,000 of new earnings in the coming year.

Reference: Ref 10-11

Where is the break point in Luzhny's cost of capital schedule.

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