Question
Delta Corporation has the following capital structure: Cost (aftertax) Weights Weighted Cost Debt (Kd) 9.6 % 30 % 2.88 % Preferred stock (Kp) 7.8 5
Delta Corporation has the following capital structure: Cost (aftertax) Weights Weighted Cost Debt (Kd) 9.6 % 30 % 2.88 % Preferred stock (Kp) 7.8 5 0.39 Common equity (Ke) (retained earnings) 9.2 65 5.98 Weighted average cost of capital (Ka) 9.25 % a. If the firm has $52 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").) b. The 9.6 percent cost of debt referred to earlier applies only to the first $24 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").)
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