Question

9) Delta Corporation has the following capital structure:   Cost
(aftertax)WeightsWeighted
Cost  Debt (K_d) 8.6% 10% 0.86%  Preferred stock (K_p) 6.8  20  1.36   Common equity (K_e) (retained earnings) 10.2  70  7.14          Weighted average cost of capital (K_a)       9.36%         a.If the firm has $49 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 8.6 percent cost of debt referred to earlier applies only to the first $9 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  rev: 11_12_2014_QC_58992

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