Problem 11-27 (Algo) Marginal cost of capital [LO11-5]

Delta Corporation has the following capital structure:

	Cost (aftertax)	Weights	Weighted Cost
Debt (Kd)	5.2%	10%	.52%
Preferred stock (Kp)	12.2	20	2.44
Common equity (Ke) (retained earnings)	7.1	70	4.97
Weighted average cost of capital (Ka)			7.93%

If the firm has $28 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".

Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10".The 5.2 percent cost of debt referred to earlier applies only to the first $15 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?