Question 1-5 of case study have already been submitted. ,,Assume that a sudden rise in interest rates has caused the cost of various capital components,to increase. Th e pretax cost of fi rst-mortgage bonds has increased to 11 percent; the,pretax cost of subordinated debentures has increased to 12.5 percent; the company’s common,stock price has declined to $18; and new stock could be sold to net Marietta $16 per,share.,a. Recompute the aft er-tax cost of the individual component sources of capital.,b. Recompute the marginal cost of capital for the various intervals of capital Marietta,can raise next year.,c. Determine the optimal capital budget for next year at the higher cost of capital.,d. How does the interest rate surge aff ect Marietta’s optimal capital budget?
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