Delta Corporation has the following capital structure: Debt (Kd) Preferred stock (Kp) Common equity (Ke) (retained...

Transcribed Image Text:

Delta Corporation has the following capital structure: Debt (Kd) Preferred stock (Kp) Common equity (Ke) (retained earnings) Weighted average cost of capital (Ka) Cost (aftertax) 6.1% Weighted Weights Cost 30% 1.83% 7.6 20 1.52 13.1 50 6.55 9.90% a. If the firm has $23 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". Capital structure size (X) million b. The 6.1 percent cost of debt referred to earlier applies only to the first $6 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? Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10". Capital structure size (Z) million Delta Corporation has the following capital structure: Debt (Kd) Preferred stock (Kp) Common equity (Ke) (retained earnings) Weighted average cost of capital (Ka) Cost (aftertax) 6.1% Weighted Weights Cost 30% 1.83% 7.6 20 1.52 13.1 50 6.55 9.90% a. If the firm has $23 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". Capital structure size (X) million b. The 6.1 percent cost of debt referred to earlier applies only to the first $6 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? Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10". Capital structure size (Z) million

Answer rating: 100% (QA)

Lets break down the problem step by step a To find out at what size capital structure the firm will ... View the full answer