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COST OF CAPITAL
Marginal cost of capital
Since equity represents 60% (12 000 / 20 000) of the capital structure this means that the company
can raise R2 000 (R1 200 x 100/60) new finance at the current WACC (14.4%).
This is referred to the break point.
The marginal cost of capital beyond this point will be based on the cost of new equity issued rather
than the cost of retained earnings.
Marginal cost of capital:
= 19% (60%) + 12% (10%) + 8% (30%)
= 15%
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