Marginal cost of capital (MCC)

· MCC is the cost of the last dollar of capital raised.
· As more capital is raised, the marginal cost of capital rises.
· At some point, as the company continues to raise capital, the MCC can be higher than the
WACC.

The cost of capital will remain unchanged as new debt, preferred stock and retained earnings are issued until the company’s retained earnings are depleted. At a point, however, when retained earnings have been depleted and new common stock has to be used, the company’s cost of capital increases. This is known as the "breakpoint".

Breakpoint for retained earnings = retained earnings / w_s