Page 34 - FINAL CFA I SLIDES JUNE 2019 DAY 10
P. 34
Session Unit 10:
36. Cost of Capital
LOS 36.k: Describe the marginal cost of capital schedule, explain why it may be upward-sloping with
respect to additional capital, and calculate and interpret its break-points., p.52
• Marginal cost of capital (MCC) - the cost of the last new dollar of capital a firm raises;
• Marginal cost of capital schedule shows the WACC for different amounts of financing.
• Break points occur any time the cost of one of the components of the company’s WACC
tanties
Example: Calculating break points, p.53: The Omni Corporation has a target capital structure of 60% equity and
40% debt. The schedule of financing costs for the Omni Corporation is shown in the figure below.
