Following is information about Seasonal Products (SP) Corporation. The company has no preferred stock. Type of Proportion of the Type of Capital After-Tax Cost Capital Capital Structure Debt, rdT 6.5%
Debt 40.0% Common equity Equity 60.0 Retained earnings, rs 12.0 New issue, re 15.0 The firm expects to retain $300,000 in earnings this year to invest in capital budgeting projects. If the SP's capital budget is expected to equal $550,000, what required rate of return, or marginal cost of capital, should be used when evaluating capital budgeting projects?
A. 9.80%
B. 11.60%
C. 9.25%
D. 11.17%
E. 9.90%
Answer: B
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