Problem $11-28($Static$)$ Marginal cost of capital $[$LO$11-5]$

The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan$$s current capital structure calls for $50$ percent debt, $30$ percent preferred stock, and $20$ percent common equity. Initially, common equity will be in the form of retained earnings $($Ke$)$

and then new common stock $($Kn$)$

$.$ The costs of the various sources of financing are as follows: debt $($after$-$tax$),9\mathrm{.}6$ percent; preferred stock, $9$ percent; retained earnings, $10$ percent; and new common stock, $11\mathrm{.}2$ percent.

What is the initial weighted average cost of capital? $($Include debt, preferred stock, and common equity in the form of retained earnings, Ke

$.)$

Note: Do not round intermediate calculations. Input your answers as a percent rounded to $2$ decimal places.

If the firm has $$18$ million in retained earnings, at what size capital structure will the firm run out of retained earnings?

Note: Enter your answer in millions of dollars $($e$.$g$.,$ $$10$ million should be entered as $"10").$

What will the marginal cost of capital be immediately after that point? $($Equity will remain at $20$ percent of the capital structure, but will all be in the form of new common stock, Kn$.)$

Note: Do not round intermediate calculations. Input your answer as a percent rounded to $2$ decimal places.

The $9\mathrm{.}6$ percent cost of debt referred to earlier applies only to the first $$29$ million of debt. After that, the cost of debt will be $11\mathrm{.}2$ percent. At what size capital structure will there be a change in the cost of debt?

Note: Enter your answer in millions of dollars $($e$.$g$.,$ $$10$ million should be entered as $"10").$

What will the marginal cost of capital be immediately after that point? $($Consider the facts in both parts c and d$.)$

Note: Do not round intermediate calculations. Input your answer as a percent rounded to $2$ decimal places.

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