MCC Schedule -Illustration:

Capital Structure Market Value/Sh. Dividend/Sh.

Debt (10 yrs. Bond) 35% $ 1067.10 $ 90
Ps 5% $ 75 $ 7.20
Common Equity 60% $ 35 $3

 Preferred stock & Common stock Can be issued at the current market price value.

 Firm marginal tax rate: 40%

 Growth at constant rate: 5%

Debt:

Face Value of debt: $ 1000

Flotation cost for issuing new debt: none

(interest paid annually)

The company can issue new 10-years debt with the same Characteristics up to max $105m

If amount excess $ 105m (same characteristics, but issuing price will match the face value)

Retained Earnings:

Retained Earnings forecast to increase: $ 120m coming year.

Cost for issuing Preferred stocks:

2% of selling price as long as amount issued ≤ $ 15m

4% of selling price > $ 15m

Common Stock:

Cost to issue new common stock = 6% if amount ≤ $ 90m issued

= 8% if amount > $ 90m issued

To Construct the MCC schedule for this company.

1. Compute the break points

2. Compute the cost of capital for each component

3. Calculate the weighted average of theses component costs to obtain the WACC