Turnbull has a target capital structure of 58% debt, 6% preferred stock & 36% common stock. The before-tax coct of debt is 8.2% & the cost of preferred stock is 9.3%. If Turnbull can raise all of its equity capital from retained earnings, the cost of common equity will be 12.4%. If it is necessary to raise new common equity, it will carry a cost of 14.2%. The current tax rate is 40%, how much higher will Turnbull's WACC be if it has to raise additional common equity capital by issuing new common instead of raising the funds through retained earnings?
- 0.54
- 0.64
- 0.86
- 0.80