ShooterMcCFA

The first question is asking you to calculate the current WACC, i.e. the WACC based on the current cost of funds and proportion of funds. The second question, however, is asking you to calculate what the WACC would be if the company had to go out and raise more funds  that’s basically what “beyond the retained earnings breakeven point” means. If you have run out of internal funds and need to raise equity, you now face the new cost of 18% rather than the previous 14%. Somehow, it is like asking you what the marginal WACC is.