Question

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").)
  



b. The 10.1 percent cost of debt referred to earlier applies only to the first $13 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").)

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