9)

Delta Corporation has the following capital structure:

	Cost (aftertax)	Weights	Weighted Cost
Debt (Kd)		8.6	%		10	%		0.86	%
Preferred stock (Kp)		6.8			20			1.36
Common equity (Ke) (retained earnings)		10.2			70			7.14
Weighted average cost of capital (Ka)								9.36	%

a.	If the firm has $49 million in retained earnings, at what size capital structure will the firm run out of retained earnings?(Enter your answer in millions of dollars (e.g., $10 million should be entered as "10").)

Capital structure size (X)

$million

b.	The 8.6 percent cost of debt referred to earlier applies only to the first $9 million of debt. After that, the cost of debt will go up. At what size capital structure will there be a change in the cost of debt?(Enter your answer in millions of dollars (e.g., $10 million should be entered as "10").)

Capital structure size (Z)

$million

rev: 11_12_2014_QC_58992