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16 Spac... Heading 1 Heading 2 Paragraph IUD HabCcb ABDd AaBb CcDd Aabend Title Subtitle Subtle Em... Emphasis intense E. Styles The management of Delta

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16 Spac... Heading 1 Heading 2 Paragraph IUD HabCcb ABDd AaBb CcDd Aabend Title Subtitle Subtle Em... Emphasis intense E. Styles The management of Delta Ltd. is trying to decide between various projects and needs to know the marginal cost of capital for various ranges of financing. The following information pertains to Delta Ltd.: Tax rate Yield on bonds issued, up to $500,000 30% 4% Yield on bonds issued over $500,000 5% Flotation cost for bonds 5% Dividend on common shares at the end of the last year $2.00 Price of common shares $40 Expected growth in earnings 3.5% Retained earnings available in the form of cash S400,000 Dividend on preferred shares $3.00 Price of preferred shares $50 3% Flotation cost for both common and preferred shares 40% % of debt in capital structure 10% % of preferred shares in capital structure 5096 % of common equity in capital structure Required: Round all values in this problem to two places to the right of the decimal point. 1. Calculate the cost of debt for new bonds up to $500.000. (2 marks) 2. Calculate the cost of new preferred shares. (2 marks) lip coa 1 Normal 1 No Spac... Heading 1 Heading 2 Subtitle Suttle Em. Emphasis Intense Paragraph Title 8 Share Orind #Replace Select- 3. Calculate the cost of retained earnings. (2 marks) Styles Editing 4. Calculate the cost of new common shares. (2 marks) 5. Calculate the value of the largest project that could be funded using the $400,000 of available retained earnings. (2 marks) 6. Calculate the largest project that could be funded using the lower cost 4% debt. (2 marks) 7. Calculate the marginal cost of capital for amounts up to the amount calculated in #5 (2 marks) 8. Calculate the marginal cost of capital for amounts between the amounts calculated in s 7. Calculate the marginal cost of capital for amounts up to the amount calculated in #5. (2 marks) 8. Calculate the marginal cost of capital for amounts between the amounts calculated in #5 and #6. (2 marks) 9. Calculate the marginal cost of capital for amounts above the amount calculated in #6. (2 marks) scer

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