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Delta Corporation has the following capital structure: Debt (K) Preferred stock (Kp) Common equity (Kel (retained earnings) Weighted average cost of capital (ka) Cost Weighted
Delta Corporation has the following capital structure: Debt (K) Preferred stock (Kp) Common equity (Kel (retained earnings) Weighted average cost of capital (ka) Cost Weighted (aftertax) Weights Cost 9.1% 40% 3.64% 10.6 10 1.06 9.1 50 4.55 9.25% a. If the firm has $16 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 9.1 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? (Enter your answer in millions of dollars (e.g., $10 million should be entered as "10").) Capital structure size (Z) million
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