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Delta Corporation has the following capital structure: Cost (aftertax) Weights Weighted Cost Debt ( K d ) 9.5 % 30 % 2.85 % Preferred stock

Delta Corporation has the following capital structure:

Cost (aftertax) Weights Weighted Cost
Debt (Kd) 9.5 % 30 % 2.85 %
Preferred stock (Kp) 9.2 15 1.38
Common equity (Ke) (retained earnings) 16.2 55 8.91
Weighted average cost of capital (Ka) 13.14 %

a. If the firm has $22 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 9.5 percent cost of debt referred to earlier applies only to the first $36 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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