The Nolan Corporation finds that it is necessary to determine its marginal cost of capital.

Nolan's current

capital structure calls for $45$ percent debt, $15$ percent preferred stock, and $40$ 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 $5\mathrm{.}6\%$

Preferred stock $9\mathrm{.}0\%$

Retained earnings $12\mathrm{.}0\%$

New common stock $13\mathrm{.}2\%$

a$.$ What is the initial weighted average cost of capital? $($Include debt, preferred stock, and common equity in

the form of retained earnings Ke$.)$

b$.$ If the firm has $$12$ million in retained earnings, at what size of investment will the firm run out of retained

earnings?

c$.$ What will the marginal cost of capital be immediately after that point? $($Equity will remain at $40$ percent of

the

capital structure, but will all be in the form of new common stock Kn$.)$

d$.$ The $5\mathrm{.}6$ percent cost of debt referred to above applies only to the first $$18$ million of debt. After that the

cost will be $7\mathrm{.}2$ percent. At what size of investment will there be a change in the cost of debt?

e$.$ What will the marginal cost of capital be immediately after that point?

$($Consider the facts in both parts c and d$.)$