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Eaton International Corporation has the following capital structure: Cost ( after tax ) Weightings Weighted Cost Debt ( Kd ) 6 . 1 % 3

Eaton International Corporation has the following capital structure:
Cost
(after tax) Weightings Weighted
Cost
Debt (Kd)6.1%30%1.83%
Preferred stock (Kp)7.6201.52
Common equity (Ke)(retained earnings)13.1506.55
Weighted average cost of capital (Ka)9.90%
a. If the firm has $23 million in retained earnings, at what size capital structure will the firm run out of retained earnings? (Enter the answer in millions.)
Capital structure size (X) $
million
b. The 6.1 percent cost of debt referred to above applied only to the first $6 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 the answer in millions.)
Capital structure size (Z) $
million

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