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Question
Following is information about Sleek Pleats (SP) Corporation. The company has no preferred stock.
Type of Proportion of the
Type of Capital After-Tax Cost Capital Capital Structure
Debt, rdT 7.0% Debt 30.0%
Common equity Equity 70.0
Retained earnings, rs 14.0
New issue, re 16.0
The firm expects to retain $210,000 in earnings this year to invest in capital budgeting projects. If the SP's capital budget is expected to equal $290,000, what required rate of return, or marginal cost of capital, should be used when evaluating capital budgeting projects?
a. 11.9%
b. 13.3%
c. 10.5%
d. 11.5%
e. 12.3%
Answer
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