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AI Hansen, the newly appointed vicepresident of finance of Berkshire Instruments,was eager to talk to his investmentbanker about future financing for the firm.One of AI's first assignments was todetermine the firn1's cost of capital. Inassessing the weights to use in computingthe cost of capital, he examined the currentbalance sheet, presented in Figure I.In their discussion, AI and his investmentbal1kcr determined that the current mix inthe capital structure was ver:-' close tooptimal and that Berkshire Instrumentsshould continue with it in the future. Ofsome concern was the appropriate cost toassign to each of the elements in the capitalstructure. AI Hansen requested that hisadministrative assistant provide data onwhat the cost ot issue debt and preferredstock had been in the past. T11e informationis provided in Figure 2.
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