Colorado Coal Company has estimated the costs of debt and equity capital (with bankruptcy and agency costs) for various proportions of debt in its capital structure.

Debt Ratio Pretax Cost Costof Weighted Average

[B/(B + E)] of Debt (kd) Equity (ke) Cost of Capital ka

0.00 _____ _____ 12.0%

0.15 _____ 13.0 11.68

0.30 8.0 14.5 _____

0.45 _____ 16.5 11.775

_____ 14.0 19.0 12.64

The company