The implied marginal cost of capital
schedule (given the series of breakpoints based on the available retained earnings and four debt limits from the banks) is presented in Exhibit 1.
Business persons can use WACC to measure the average cost of capital that they can then use as the marginal cost of capital
for expansion investments.
Finally, we measure the marginal cost of capital
by the sum of the yield of the on-the-run ten-year TIPS and an (unobservable) equity risk premium, defined as the return investors expected above and beyond the ten-year TIPS yield.
Second, the funding activities of financial firms do not provide useful signals about the marginal cost of capital
. This is because, for the majority of large and well-capitalised financial firms, the marginal cost of funds is indifferent to day-to-day changes in the degree of leverage or risk in their balance sheets.