Wellington Gas Has a Target Capital Structure of 50% Equity

Multiple Choice

Wellington Gas has a target capital structure of 50% equity, 40% debt, and 10% preferred stock. The cost of retained earnings is 16 percent, and the cost of new equity (from selling stock) is 16.7 percent. Wellington can sell debentures at an after-tax cost of 8.3%. Its cost of preferred stock is 11.9%. What is Wellington's cost of capital before and after the break point in the MCC?

A) 12.51% and 12.86%
B) 11.18% and 11.53%
C) 14.23% and 14.68%
D) None of the above