Question
Delta Corporation has the following capital structure: Cost (aftertax) Weights Weighted Cost Debt (Kd) 5.5 %...
Delta Corporation has the following capital structure: Cost (aftertax) Weights Weighted Cost Debt (Kd) 5.5 % 25 % 1.38 % Preferred stock (Kp) 10.5 25 2.63 Common equity (Ke) (retained earnings) 10.5 50 5.25 Weighted average cost of capital (Ka) 9.25 %
a. If the firm has $26 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 5.5 percent cost of debt referred to earlier applies only to the first $18 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?
Homework Answers
Answer #1
Not the answer you're looking for?
Similar Questions
Delta Corporation has the following capital structure: Cost (aftertax) Weights Weighted Cost Debt (Kd) 6.2...
Delta Corporation has the following capital structure:
Cost
(aftertax)
Weights
Weighted
Cost
Debt
(Kd)
6.2
%
25
%
1.55
%
Preferred stock
(Kp)
5.5
25
1.38
Common equity
(Ke) (retained earnings)
15.5
50
7.75
Weighted average cost of capital
(Ka)
10.68
%
a. If the firm has $22 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...
Delta Corporation has the following capital structure: Cost (aftertax) Weights Weighted Cost Debt (Kd) 10.1 %...
Delta Corporation has the following capital structure:
Cost
(aftertax)
Weights
Weighted
Cost
Debt (Kd)
10.1
%
20
%
2.02
%
Preferred stock (Kp)
11.2
15
1.68
Common equity (Ke) (retained
earnings)
8.1
65
5.27
Weighted average cost of capital
(Ka)
8.97
%
a. If the firm has $39 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").)...
The Tyler Oil Company’s capital structure is as follows: Debt 65 % Preferred stock 10 Common...
The Tyler Oil Company’s capital structure is as follows: Debt 65
% Preferred stock 10 Common equity 25 The aftertax cost of debt is
11 percent; the cost of preferred stock is 14 percent; and the cost
of common equity (in the form of retained earnings) is 17 percent.
a-1. Calculate Tyler Oil Company’s weighted average cost of
capital. (Round the final answers to 2 decimal places.) Weighted
Cost Debt (Kd) % Preferred stock (Kp) Common equity (Ke) Weighted
average...
Evans Technology has the following capital structure. Debt 35 % Common equity 65 The aftertax cost...
Evans Technology has the following capital structure. Debt 35 %
Common equity 65 The aftertax cost of debt is 8.50 percent, and the
cost of common equity (in the form of retained earnings) is 15.50
percent.
a. What is the firm’s weighted average cost of capital? (Do not
round intermediate calculations. Input your answers as a percent
rounded to 2 decimal places.) An outside consultant has suggested
that because debt is cheaper than equity, the firm should switch to
a...
The McGee Corporation finds it is necessary to determine its marginal cost of capital. McGee’s current...
The McGee Corporation finds it is necessary to determine its
marginal cost of capital. McGee’s current capital structure calls
for 35 percent debt, 25 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 (after-tax), 5.4 percent; preferred
stock, 9.0 percent; retained earnings, 10.0 percent; and new common
stock, 11.2 percent.
a....
The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current...
The Nolan Corporation finds it is necessary to determine its
marginal cost of capital. Nolan’s current capital structure calls
for 30 percent debt, 25 percent preferred stock, and 45 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, 7.2 percent; preferred stock, 10
percent; retained earnings, 12 percent; and new common stock, 13.2
percent.
a. What...
The McGee Corporation finds it is necessary to determine its marginal cost of capital. McGee’s current...
The McGee Corporation finds it is necessary to determine its
marginal cost of capital. McGee’s current capital structure calls
for 35 percent debt, 25 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, 6.2 percent;
preferred stock, 8.0 percent; retained earnings, 11.0 percent; and
new common stock, 12.2 percent.
a. What...
The Evans Corporation finds that it is necessary to determine its marginal cost of capital. Evans'...
The Evans Corporation finds that it is necessary to determine
its marginal cost of capital. Evans' current capital structure
calls for 30 percent debt, 10 percent preferred stock, and 60
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, 6.2
percent; preferred stock, 9.4 percent; retained earnings, 12
percent; and new common stock, 13.4 percent.
What...
The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s current...
The Nolan Corporation finds it is necessary to determine its
marginal cost of capital. Nolan’s current capital structure calls
for 40 percent debt, 20 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 (after-tax), 6.5 percent; preferred
stock, 12 percent; retained earnings, 10 percent; and new common
stock, 11.2 percent.
a....
The McGee Corporation finds it is necessary to determine its marginal cost of capital. McGee’s current...
The McGee Corporation finds it is necessary to determine its
marginal cost of capital. McGee’s current capital structure calls
for 40 percent debt, 10 percent preferred stock, and 50 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, 7.2 percent; preferred stock, 5.0
percent; retained earnings, 12.0 percent; and new common stock,
13.2 percent.
a. What...
ADVERTISEMENT
Need Online Homework Help?
Get Answers For Free
Most questions answered within 1 hours.
ADVERTISEMENT
Active Questions
asked 4 minutes ago
asked 7 minutes ago
asked 7 minutes ago
asked 17 minutes ago
asked 20 minutes ago
asked 36 minutes ago
asked 46 minutes ago
asked 56 minutes ago
asked 59 minutes ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago