Question
Delta Corporation has the following capital structure: Cost (aftertax) Weights Weighted Cost Debt ( K d ) 9.0 % 25 % 2.25 % Preferred stock
Delta Corporation has the following capital structure:
| Cost (aftertax) | Weights | Weighted Cost | |||||||
| Debt (Kd) | 9.0 | % | 25 | % | 2.25 | % | |||
| Preferred stock (Kp) | 8.2 | 5 | 0.41 | ||||||
| Common equity (Ke) (retained earnings) | 15.2 | 70 | 10.64 | ||||||
| Weighted average cost of capital (Ka) | 13.30 | % | |||||||
|
a. If the firm has $35 million in retained earnings, at what size capital structure will the firm run out of retained earnings? b. The 9.0 percent cost of debt referred to earlier applies only to the first $12 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? | |||||||||
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Chains Of Finance How Investment Management Is Shaped
Authors: Diane-Laure Arjalies, Philip Grant, Iain Hardie, Donald MacKenzie, Ekaterina Svetlova
1st Edition
0198802943, 978-0198802945
