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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%.

Required:

Question: Calculate the WACC above and below the break points in the marginal cost of capital schedule.

Note: Provide support for your underlying principle.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91168247

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