Problem $11-29($Algo$)$ Marginal cost of capital $[$LO$11-5]$

The McGee Corporation finds it is necessary to determine its marginol cost of capital. McGee's current capital structure calls for $45$ percent debt, $20$ percent preferred stock, and $35$ percent common equity. Initiolly, common equity will be in the form of retoined esmings $(K_c)$ and then new common stock $(K_n).$ The costs of the vorious sources of finoncing ore os follows: debt $($ofter$-$tox$),6\mathrm{.}2$ percent; preferred stock, $9\mathrm{.}0$ percent; retained eornings, $8\mathrm{.}0$ percent; and new common stock, $9\mathrm{.}2$ percent.

a$.$ What is the initisl weighted overoge cost of copital? $($Include debt, preferred stock, and common equity in the form of retoined earnings, $K_c.)$

Note: Do not round intermediate calculations. Input your answers as a percent rounded to $2$ decimal places.

$\backslash$table$[[,$Wellghted coat,$],[$Debt$,,],[$Preferred stod,,$],[$Comunon equily,,$],[$Weightsed anerage cost of capilal,,$]]$

b$.$ If the firm hos $$28\mathrm{.}0$ million in retoined earnings, at what size copital structure will the firm run out of retoined eornings?

Note: Enter your answer In millions of dollars $($e$.$g$.$ $$10$ million should be entered as $"10").$

$\backslash$table$[[$Capital struclure size $(x),$milion$]]$

c$.$ What will the marginsl cost of capitsl be immediately ofter thot point? $($Equity will remoin at $35$ percent of the capital structure, but will all be in the form of new common stock. $K_n.)$

Note: Do not round intermediate calculatlons. Input your answer as a percent rounded to $2$ declmal places.

Marginal cost of capilal

$\%$

d$.$ The $6\mathrm{.}2$ percent cost of debt referred to obove opplies only to the first $$45$ million of debt. After that, the cost of debt will be $8\mathrm{.}5$ percent. At whot size copitol structure will there be a chonge in the cost of debt?

Note: Enter your answer in millions of dollars $($e$.$g$.$ $$10$ milion should be entered as $"10").$

Capital Ptructure size $($Z$)$

million

e$.$ What will the marginal cost of copital be immediately ofter that point? $($Consider the focts in both parts $c$ and $d)$

Do not round intermediate calculations. Input your answer as a percent rounded to $2$ decimal places.

$\backslash$table$[[$Marginal cosi of capital,$]]$