What size capital structure will the firm run out

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Reference no: EM133138071

Delta Corporation has the following capital structure: Cost (aftertax) Weights Weighted Cost  

Debt (Kd) 7.5% 15% 1.13% 

Preferred stock (Kp) 6.2 10 0.62 

Common equity (Ke) (retained earnings) 8.5 75 6.38 

Weighted average cost of capital (Ka) 8.12% 

a. If the firm has $48 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").) 

b. The 7.5 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? 

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

Reference no: EM133138071

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