Understanding Marginal Cost of Capital

Company XYZ is planning to raise additional funds to finance a new project. Currently, the company estimates that it will need to increase its debt and equity financing to support this growth. The marginal cost of capital is crucial in determining the overall cost of financing for the new project.

The marginal cost of capital is defined as the cost of new funds raised by the company. It considers both equity and debt markets and is typically increasing with more capital raised due to higher perceived risk and fluctuations in interest rates.

Given the context, what is the marginal cost of capital likely to determine regarding the company’s financing strategy?